News Column

PARTNERRE LTD - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 27, 2014

The following discussion and analysis reflects the consolidated results of the Company and its subsidiaries for the years ended December 31, 2013, 2012 and 2011. Executive Overview



The Company is a leading global reinsurer and insurer, with a broadly diversified and balanced portfolio of traditional reinsurance and insurance risks and capital markets risks.

Successful risk management is the foundation of the Company's value proposition, with diversification of risks at the core of its risk management strategy. The Company's ability to succeed in the risk assumption and management business is dependent on its ability to accurately analyze and quantify risk, to understand volatility and how risks aggregate or correlate, and to establish the appropriate capital requirements and limits for the risks assumed. All risks, whether they are reinsurance related risks or capital market risks, are managed by the Company within an integrated framework of policies and processes to ensure the intelligent and consistent evaluation and valuation of risk, and to ultimately provide an appropriate return to shareholders. For further discussion of the Company's risk management framework, see Risk Management in Item 1 of Part I of this report. The Company's economic objective is to manage a portfolio of risks that will create total shareholder value and uses annual diluted tangible book value per share and share equivalents outstanding plus dividends to measure its success. Management assesses this economic objective over the reinsurance cycle, rather than any particular quarterly or annual period, given the Company's profitability is significantly affected by the level of large catastrophic losses that it incurs each period. The Company uses a number of other metrics to monitor its performance in meeting its economic objective, which are discussed further below under Key Financial Measures. As described in more detail below, the Company is facing a challenging and limited growth environment, which is driven by price decreases in most markets and lines of business, reflecting increased competition and excess capacity in the industry, relatively low loss experience and a prolonged period of low interest rates. However, the Company's strong global franchise and geographical footprint position the Company well for the future as does the acquisition of Paris Re in 2009, which provided enhanced strategic and financial flexibility, and the recent acquisition of PartnerRe Health in 2012, which provided additional diversification into the U.S. accident and health market. While the Company continues to face this challenging business environment, Management has also focused on implementing cost saving initiatives. In 2013, Management announced the restructuring of its business support operations into a single integrated worldwide support platform and changes to the structure of certain of its Non-life operations, both of which are expected to provide greater operational efficiency. Regarding capital management, and as a result of the challenging business environment described above, during 2013 the Company returned approximately $840 million to its common shareholders through share repurchases and dividends. As the Company looks to 2014 and beyond, despite the challenging environment, Management remains confident in the Company's strong global franchise, geographical footprint and technical underwriting skills and is focused on continuing to maintain its strong relationships with clients and actively managing its capital resources.



The following discussion provides an overview of the Company's business and trends and commentary regarding the outlook for 2014 in each business.

Non-life reinsurance and insurance business, trends and 2014 outlook

The Company generates its Non-life reinsurance and insurance revenue from premiums. Premium rates and terms and conditions vary by line of business depending on market conditions. Pricing cycles are driven by supply of capital in the industry and demand for reinsurance and insurance and other risk transfer products. The 63



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reinsurance and insurance business is also influenced by several other factors, including variations in interest rates and financial markets, changes in legal, regulatory and judicial environments, loss trends, inflation and general economic conditions. In its reinsurance portfolio, the Company writes all lines of business in virtually all markets worldwide. In addition, the Company provides certain specialty insurance lines of business. The Company differentiates itself through its risk management strategy, its financial strength and its strong global franchise. In assuming its clients' risks, the Company removes the volatility associated with those risks from the client, and then manages those risks and the risk-related volatility. Through its broad product and geographic diversification, its execution capabilities and its local presence in most major markets, the Company is able to stabilize returns, respond quickly to market needs, and capitalize on business opportunities virtually anywhere in the world. A key challenge facing the Company is to successfully manage risk through all phases of the reinsurance cycle. The Company believes that its long-term strategy of closely monitoring the progression of each line of business, being selective in the business that it writes, and maintaining the diversification and balance of its portfolio, will optimize returns over the reinsurance cycle. Individual lines of business and markets have their own unique characteristics and are at different stages of the reinsurance pricing cycle at any given point in time. Management believes it has achieved appropriate portfolio diversification by product, geography, line and type of business, length of tail, and distribution channel. Further, Management believes that this diversification, in addition to the financial strength of the Company and its strong global franchise, will help to mitigate cyclical declines in underwriting profitability and achieve a more stable return over the reinsurance cycle. The Non-life reinsurance market has historically been highly cyclical in nature. The reinsurance cycle is driven by competition, the amount of capital and capacity in the industry, loss events and investment returns. The Company's long-term strategy to generate total shareholder value focuses on broad product, asset and geographic diversification of risks. The cyclicality of the Non-life reinsurance market is characterized by cycles of growth and decline, known as hard and soft insurance cycles. Since late 2003, the Company began to see the emergence of a soft market across most lines of business with general decreases in pricing and profitability. With the exception of lines and markets impacted by specific catastrophic or large loss events, this trend continued throughout the decade. From 2011 to 2013, the Company experienced increases in pricing in certain loss affected lines of business and markets, which were primarily related to the increased catastrophic and large loss activity during 2011 and from the impact of Superstorm Sandy in 2012. During 2013, in lines of business and markets that have not been specifically impacted by any large losses in recent years, the terms and conditions continued to be mainly static and soft in most markets, with price deteriorations observed in some markets as a result of increased competition and excess capacity in the industry. During the January 1, 2014 renewals the Company experienced an increase of approximately 3% in renewable Non-life treaty business, on a constant foreign exchange basis. The increase in expected premium volume was driven primarily by the Company's diversifying lines, and was mainly attributable to certain contracts negotiated earlier in 2013 and incepting on January 1, 2014. As a result, the North America and Global Specialty sub-segments experienced increases in renewable premium base, while the Catastrophe and Global (Non-U.S.) P&C sub-segments experienced declines driven by declining pricing and pressure on terms and conditions in most markets that were not loss affected. The Company writes a large majority of its business on a treaty basis and renews approximately 65% of its total annual Non-life treaty business on January 1. The remainder of the Non-life treaty business renews at other times during the year. During the January 1, 2014 renewals, all Non-life sub-segments experienced increased cedant retentions and increased competition, which resulted in further declines in pricing and deterioration in terms and conditions. The excess capacity in the industry, which results in cedants retaining more business and decreasing the available premium in the global industry, combined with the growth in insurance-linked securities and other alternative 64



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capital flows into the industry, continue to provide a challenge to writing business meeting our profitability requirements. Despite these persistent challenging market conditions, the Company believes that its strong global franchise and geographic footprint, long track record and broad yet highly technical capabilities over many lines of business, position the Company well. The Company expects to continue with its initiatives to find new diversifying risks and expand relationships with existing clients.



Life and Health reinsurance business, trends and 2014 outlook

The Company's Life and Health segment derives revenues primarily from renewal premiums from existing reinsurance treaties and new premiums from existing or new reinsurance treaties. Within the Life and Health segment, the Company writes mortality (including disability), longevity and, following the acquisition of PartnerRe Health, U.S. accident and health products. The acquisition of the PartnerRe Health business on December 31, 2012 provides additional specialty risks not previously written by the Company. Management believes the existing life business and PartnerRe Health business provide the Company with diversification benefits and balance to its portfolio as they are generally not correlated to the Company's Non-life business. For the years ended December 31, 2012 and 2011, the Company did not write any new life business in the U.S., however, following the acquisition of PartnerRe Health, from January 1, 2013 the Company began writing accident and health business in the U.S. The long-term profitability of the life business (including the mortality and longevity lines of business) mainly depends on the volume and amount of death claims incurred and the ability to adequately price the risk the Company assumes. The life reinsurance policies are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. The volume of the business may be reduced each year by terminations of the underlying treaties related to lapses, voluntary surrenders, death of insureds and recaptures by ceding companies. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and can fluctuate significantly from quarter to quarter or from year to year. The long-term profitability of the accident and health business mainly depends on the volume and amount of medical claims and expenses. While the volume of medical claims can be predicted to a certain extent, the amount of claims and expenses depends on various factors, primarily health care inflation rates, driven by a shift towards the older population, reliance on expensive medical equipment and technology, and changes in demand for health care services over time. In 2013, PartnerRe Health principally operated as a Managing General Agent (MGA), writing all of its business on behalf of third party insurance companies and earning a fee for producing the business. The third party insurance companies then ceded a portion of the original business written through quota-share reinsurance agreements to the Company's reinsurance subsidiary, such that PartnerRe Health participated in the original premiums and losses incurred related to the business it has produced and ensuring an alignment of interests with the third party insurance companies. During 2013, the Company obtained the necessary licenses and approvals and began transitioning the portfolio to PartnerRe carriers. As of January 1, 2014, virtually all of the PartnerRe Health business is originated directly, without the use of third party insurance companies. As such, PartnerRe Health's premiums are expected to grow in 2014 and the MGA fees will be substantially reduced. The acquisition of the PartnerRe Health business resulted in substantial overall premium growth in the Company's Life and Health segment in 2013 and more modest growth is expected in 2014 as a result of the transition described above. At the January 1, 2014 renewals, opportunities in managed care and specialty lines of the PartnerRe Health business were observed as a result of the implementation of the Patient Protection and Affordable Care Act. In terms of the Company's Life portfolio, the majority of the premium arises from long-term in-force contracts. The active January 1 renewals impact a relatively limited portion of the short-term in-force premium in the mortality line. For those treaties that actively renewed, pricing conditions and terms were 65



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modestly softer from the January 1, 2013 renewals. Management expects moderate continued growth in the Company's existing Life portfolio in 2014, assuming constant foreign exchange rates.

Investment business, trends and 2014 outlook

The Company generates revenue from its high quality investment portfolio, as well as the investments underlying the funds held - directly managed account, through net investment income, including coupon interest on fixed maturities and dividends on equities, and realized and unrealized gains and losses on investments. For the Company's investment risks, which include both public and private market investments, diversification of risk is critical to achieving the risk and return objectives of the Company. The Company's investment policy distinguishes between liquid, high quality assets that support the Company's liabilities, and the more diversified, higher risk asset classes that make up the Company's capital funds. While there will be years where investment markets risks achieve less than the risk-free rate of return, or potentially even negative results, the Company believes the rewards for assuming these risks in a disciplined and measured way will produce a positive excess return to the Company over time. Additionally, since investment risks are not fully correlated with the Company's reinsurance risks, this increases the overall diversification of the Company's total risk portfolio. The Company follows prudent investment guidelines through a strategy that seeks to maximize returns while managing investment risk in line with the Company's overall objectives of earnings stability and long-term book value growth. The Company allocates its invested assets into two categories: liability funds and capital funds. See the discussion of liability funds and capital funds in Financial Condition, Liquidity and Capital Resources. A key challenge for the Company is achieving the right balance between current investment income and total returns (that include price appreciation or depreciation) in changing market conditions. The Company regularly reviews the allocation of investments to asset classes within its investment portfolio and its funds held - directly managed account and allocates investments to those asset classes the Company anticipates will outperform in the near future, subject to limits and guidelines. Similarly, the Company reduces its exposure to risk asset classes where returns are underperforming. The Company may also lengthen or shorten the duration of its fixed maturity portfolio in anticipation of changes in interest rates, or increase or decrease the amount of credit risk it assumes, depending on credit spreads and anticipated economic conditions. The Company's investment operations, including public and private market investments, have experienced volatile market conditions since the middle of 2007. The market conditions remained volatile in 2013, primarily due to increases in risk-free interest rates, improvements in equity markets and narrowing credit spreads, while during 2012 the volatility was due to narrowing spreads and improvements in equity markets. Assuming constant foreign exchange rates, Management expects net investment income to continue to decrease in 2014 compared to 2013 primarily due to lower reinvestment rates with low yields expected to continue throughout 2014. Management expects this decrease to be partially offset by expected positive cash flow from operations (including net investment income).



Overview of the Results of Operations

The Company measures its performance in several ways. Among the performance measures accepted under U.S. GAAP is diluted net income or loss per share, a measure that focuses on the return provided to the Company's common shareholders. Diluted net income or loss per share is obtained by dividing net income or loss attributable to PartnerRe Ltd. common shareholders by the weighted average number of common shares and common share equivalents outstanding. Net income or loss attributable to PartnerRe Ltd. common shareholders is defined as net income or loss less preferred dividends and loss on redemption of preferred shares. The Company also utilizes certain non-GAAP measures to assess performance (see the discussion of these non-GAAP measures and the reconciliation of those non-GAAP measures to the most directly comparable GAAP measures in Key Financial Measures below). 66



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Overview of Net Income (Loss)

Net income (loss), net income attributable to noncontrolling interests, preferred dividends, loss on redemption of preferred shares, net income (loss) attributable to PartnerRe Ltd. common shareholders and diluted net income (loss) per share for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions of U.S. dollars, except per share data): 2013 2012 2011 Net income (loss) $ 673$ 1,135$ (520 ) Less: net income attributable to noncontrolling interests 9 - -



Net income (loss) attributable to PartnerRe Ltd.$ 664$ 1,135$ (520 ) Less: preferred dividends

58 62 47 Less: loss on redemption of preferred shares 9 - - Net income (loss) attributable to PartnerRe Ltd. common shareholders $ 597$ 1,073$ (567 ) Diluted net income (loss) per share attributable to PartnerRe Ltd. common shareholders $ 10.58$ 16.87$ (8.40 ) 2013 compared to 2012



The decrease in net income of $462 million, from $1,135 million in 2012 to $673 million in 2013 resulted primarily from:

an increase of $655 million in pre-tax net realized and unrealized

investment losses, mainly as a result of increases in risk-free interest

rates during 2013 compared to narrowing spreads and improvements in equity

markets in 2012; a decrease of $87 million in net investment income, primarily driven by

lower reinvestment rates; and



an increase of $68 million in other operating expenses, primarily driven

by the restructuring charges described below; partially offset by an increase of $170 million in the Non-life underwriting result, which was

mainly driven by a lower level of large catastrophic losses and large losses and an increase in favorable prior year loss development and partially offset by a higher level of mid-sized loss activity;



a decrease of $155 million in income tax expense, primarily resulting from

a lower pre-tax net income in 2013 compared to 2012; and



an increase of $28 million in the Life and Health underwriting result,

primarily driven by an increase in favorable prior year loss development.

The decrease in net income attributable to PartnerRe Ltd. common shareholders and diluted net income per share for the year ended December 31, 2013 compared to 2012 was primarily due to the above factors. For diluted net income per share specifically, the decrease was partially offset by the accretive impact of a reduction in the diluted number of common shares and common share equivalents outstanding as a result of share repurchases.



2012 compared to 2011

The increase in net income of $1,655 million in 2012 compared to 2011 resulted primarily from:

an increase of $1,429 million in the Non-life underwriting result, which

was primarily driven by a decrease of $1,417 million in large catastrophic

losses and large losses; and 67



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an increase of $427 million in pre-tax net realized and unrealized

investment gains primarily as a result of narrowing credit spreads,

improvements in worldwide equity markets and decrease in risk-free rates; partially offset by



an increase of $135 million in income tax expense, resulting from a higher

pre-tax net income; and a decrease of $58 million in net investment income, primarily driven by



lower reinvestment rates.

The increase in net income available to PartnerRe Ltd. common shareholders and diluted net income per share in 2012 compared to 2011 was primarily due to the above factors, partially offset by an increase in preferred dividends following the issuance of preferred shares in June 2011. For diluted net income per share specifically, the increase was also due to a decrease in the diluted number of common shares outstanding as a result of share repurchases during 2012.



Key Factors Affecting Year over Year Comparability

The following key factors affected the year over year comparison of the Company's results and are discussed in more detail in Review of Net Income (Loss) below.

Large catastrophic and large loss events

As the Company's reinsurance operations are exposed to low frequency and high severity risk events, some of which are seasonal, results for certain periods may include unusually low loss experience, while results for other periods may include significant catastrophic losses. For example, the Company's results for 2013 and 2012 included a comparatively lower level of catastrophic losses, while 2011 included an unusually high frequency of high severity catastrophic events as discussed further below. The total impact of large catastrophic losses and large losses on pre-tax net income (loss) for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars): Year ended December 31, Total (1) 2013 $ 142 2012 318 2011 1,790



(1) Large catastrophic losses and large losses are shown net of any reinsurance,

reinstatement premiums and profit commissions.

The combined impact of the large catastrophic losses and large losses, the impact on the Company's technical result, net realized and unrealized investment gains or losses, pre-tax net income or loss, loss ratio, technical ratio and combined ratio by segment and sub-segment, and the large catastrophic losses and large losses by event for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars): Global Total Life North (Non-U.S.) Global Non-life and Health Corporate 2013 America P&C Specialty Catastrophe segment segment and Other Total Net losses and loss expenses and life policy benefits $ 14 $ 11 $ 15 $ 115 $ 155 $ - $ - $ 155 Reinstatement premiums - - - (13 ) (13 ) - - (13 ) Impact on technical result and pre-tax net income $ 14 $ 11 $ 15 $ 102 $ 142 $ - $ - $ 142 Impact on the loss ratio 0.9 % 1.5 % 1.0 % 25.0 % 3.5 % Impact on the technical ratio 0.9 1.5 1.0 25.0 3.4 Impact on the combined ratio 3.4 % 68



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2013 Total (1) German Hailstorm $ 58 Alberta Floods 48 European Floods 36 Impact on pre-tax net income $ 142



(1) Large catastrophic losses and large losses are shown net of any reinsurance,

reinstatement premiums and profit commissions. Global Total Life and North (Non-U.S.) Global Non-life Health Corporate 2012 America P&C Specialty Catastrophe segment segment and Other Total Net losses and loss expenses and life policy benefits $ 157 $ 2 $



87 $ 82 $ 328 $ - $ - $ 328 Reinstatement premiums

- - (1 ) (11 ) (12 ) - - (12 )



Impact on technical result $ 157 $ 2 $

86 $ 71 $ 316 $ - $ - $ 316 Net realized and unrealized investment losses - - 2 2 Impact on pre-tax income $ 316 $ - $ 2$ 318 Impact on the loss ratio 13.4 % 0.3 % 6.3 % 17.8 % 8.7 % Impact on the technical ratio 13.4 0.3 6.3 17.6 8.7 Impact on the combined ratio 8.7 % 2012 Total (1) Superstorm Sandy $ 227 U.S. drought 91 Impact on pre-tax net income $ 318



(1) Large catastrophic losses and large losses are shown net of any reinsurance,

reinstatement premiums and profit commissions. Global Total Life and North (Non-U.S.) Global Non-life Health Corporate 2011 America P&C Specialty Catastrophe segment segment and Other Total Net losses and loss expenses and life policy benefits $ 56$ 149 $



65 $ 1,511$ 1,781$ 3$ 5$ 1,789 Reinstatement premiums

- - - (33 ) (33 ) - - (33 ) Acquisition costs (6 ) - - (9 ) (15 ) - - (15 )



Impact on technical result $ 50$ 149 $

65 $ 1,469$ 1,733$ 3$ 5$ 1,741 Net realized and unrealized investment losses - - 49 49 Impact on pre-tax net loss $ 1,733$ 3$ 54$ 1,790 Impact on the loss ratio 4.9 % 19.7 % 4.8 % 262.1 % 45.9 % Impact on the technical ratio 4.4 19.7 4.8 260.1 45.3 Impact on the combined ratio 45.2 % 69



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Table of Contents 2011 Total (1) Japan Earthquake $ 919 February and June 2011 New Zealand Earthquakes 455 Thailand Floods 120 U.S. tornadoes 107 Aggregate contracts covering losses in New Zealand and Australia 100 Australian Floods 41 Additional IBNR (2) 48 Impact on pre-tax net loss $ 1,790



(1) Large catastrophic losses and large losses are shown net of any reinsurance,

reinstatement premiums and profit commissions.

(2) The Company recorded an additional IBNR reserve related to the 2011

catastrophic events, above the sum of the recorded point estimates, given the

high frequency of, and uncertainty related to, these complex and highly

volatile events.

Volatility in capital and credit markets

In 2013, U.S. and European risk-free interest rates increased and equity markets improved and credit spreads narrowed, while the U.S. dollar ending exchange rate at December 31, 2013 weakened against most major currencies compared to December 31, 2012. As a result of these movements, the value of the Company's investment portfolio and cash and cash equivalents at December 31, 2013 decreased compared to December 31, 2012, with the resulting mark-to-market net loss recorded in net income. Offsetting the gross mark-to-market loss was an unrealized gain related to the initial public offering of an investment in a mortgage guaranty insurance company. In 2012, credit spreads narrowed, equity markets improved and U.S. and European risk-free interest rates decreased, while the U.S. dollar ending exchange rate at December 31, 2012 weakened against most major currencies compared to December 31, 2011. As a result of these movements, the value of the Company's investment portfolio and cash and cash equivalents at December 31, 2012 increased compared to December 31, 2011, with the resulting mark-to-market net gain recorded in net income. Restructuring charges In April 2013, the Company announced the restructuring of its business support operations into a single integrated worldwide support platform and changes to the structure of its Global Non-life Operations. The restructuring includes involuntary and voluntary employee termination plans in certain jurisdictions (collectively, termination plans) and certain real estate costs. Employees affected by the termination plans have varying leaving dates, largely through to mid-2014. During the year ended December 31, 2013, the Company recorded a pre-tax charge of approximately $58 million related to the costs of the restructuring, which was primarily related to the termination plans and certain real estate costs, within other operating expenses. The continuing salary and other employment benefit costs related to the affected employees will be expensed as the employee remains with the Company and provides service. In connection with the restructuring, and included within the total expected costs of between $60 million and $70 million announced by the Company in April 2013, the Company expects to incur further real estate costs totaling between $5 million and $10 million in the first half of 2014. 70



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Acquisition of PartnerRe Health

Effective December 31, 2012, the Company completed the acquisition of PartnerRe Health. The Consolidated Statements of Operations and Cash Flows, and the Life and Health segment, include the results of PartnerRe Health from January 1, 2013.



Key Financial Measures

In addition to the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income (Loss), Management uses certain other key measures, some of which are non-GAAP financial measures within the meaning of Regulation G (see below), to evaluate its financial performance and the overall growth in value generated for the Company's common shareholders. The Company's long-term objective is to manage a portfolio of diversified risks that will create total shareholder value. The Company measures its success in achieving its long-term objective by targeting a return, which is variable and can be adjusted by Management, in excess of a referenced risk-free rate over the reinsurance cycle. The return, which is currently targeted to exceed 700 basis points in excess of the referenced risk-free rate, is calculated using compound annual growth in diluted tangible book value per common share and common share equivalents outstanding plus dividends per common share (growth in Diluted Tangible Book Value per Share plus dividends). Management uses growth in Diluted Tangible Book Value per Share plus dividends as its prime measure of long-term financial performance and believes this measure aligns the Company's stated long-term objective with the measure most investors use to evaluate total shareholder value creation given that it focuses on the tangible value of total shareholder returns, excluding the impact of goodwill and intangibles. Given the Company's profitability in any particular quarterly or annual period can be significantly affected by the level of large catastrophic losses, Management assesses this long-term objective over the reinsurance cycle as the Company's performance during any particular quarterly or annual period is not necessarily indicative of its performance over the longer-term reinsurance cycle.



While growth in Diluted Tangible Book Value per Share plus dividends is the Company's prime financial measure, Management also uses other key financial measures to monitor performance. At December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 these were as follows:

December 31, December 31, 2013 2012 Diluted tangible book value per common share and common share equivalents outstanding (1) $ 98.49$ 90.86 Growth in diluted tangible book value per common share and common share equivalents outstanding plus dividends (2) 11.2 % 2013 2012 2011



Operating earnings (loss) attributable to PartnerRe Ltd. common shareholders (in millions of U.S. dollars) (3)

$ 722 $



664 $ (642 ) Diluted operating earnings (loss) per common share and common share equivalents outstanding (3)

$ 12.79$ 10.43$ (9.50 ) Operating return on beginning diluted book value per common share and common share equivalents outstanding (4) 12.7 % 12.3 % (10.1 )% Combined ratio (5) 85.3 % 87.8 % 125.4 %



(1) Diluted tangible book value per common share and common share equivalents

outstanding (Diluted Tangible Book Value per Share) is calculated using

common shareholders' equity attributable to PartnerRe Ltd. (total

shareholders' equity less noncontrolling interests and the aggregate

liquidation value of preferred shares) less goodwill and intangible assets,

net of tax, divided by the weighted average number of common shares and

common share equivalents outstanding (assuming exercise of all stock-based

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and other dilutive securities). The presentation of Diluted Tangible Book

Value per Share is a non-GAAP financial measure within the meaning of

Regulation G (see Comment on Non-GAAP Measures below) and is reconciled to

the most directly comparable GAAP financial measure below.

(2) Growth in diluted tangible book value per common share and common share

equivalents outstanding plus dividends (growth in Diluted Tangible Book Value

per Share plus dividends) is calculated using Diluted Tangible Book Value per

Share plus dividends per common share divided by Diluted Tangible Book Value

per Share at the beginning of the year. The presentation of growth in Diluted

Tangible Book Value per Share plus dividends is a non-GAAP financial measure

within the meaning of Regulation G (see Comment on Non-GAAP Measures below)

and is reconciled to the most directly comparable GAAP financial measure

below.

(3) Operating earnings or loss attributable to PartnerRe Ltd. common shareholders

(operating earnings or loss) is calculated as net income or loss available to

PartnerRe Ltd. common shareholders excluding net realized and unrealized

gains or losses on investments, net of tax (except where the Company has made

a strategic investment in an insurance or reinsurance related investee), net

foreign exchange gains or losses, net of tax, loss on redemption of preferred

shares and the interest in earnings or losses of equity investments, net of

tax (except where the Company has made a strategic investment in an insurance

or reinsurance related investee and where the Company does not control the

investee's activities), and is calculated after preferred dividends.

Operating earnings or loss per common share and common share equivalent

outstanding (diluted operating earnings or loss per share) are calculated

using operating earnings or loss for the period divided by the weighted

average number of common shares and common share equivalents outstanding. The

presentation of operating earnings or loss and diluted operating earnings or

loss per share are non-GAAP financial measures within the meaning of

Regulation G (see Comment on Non-GAAP Measures below) and are reconciled to

the most directly comparable GAAP financial measure below.

(4) Operating return on beginning diluted book value per common share and common

share equivalents outstanding (Operating ROE) is calculated using operating

earnings or loss, as defined above, per diluted common share and common share

equivalents outstanding, divided by diluted book value per common share and

common share equivalents outstanding as of the beginning of the year, as

defined above. The presentation of Operating ROE is a non-GAAP financial

measure within the meaning of Regulation G (see Comment on Non-GAAP Measures

below) and is reconciled to the most directly comparable GAAP financial

measure below.

(5) The combined ratio of the Non-life segment is calculated as the sum of the

technical ratio (losses and loss expenses and acquisition costs divided by

net premiums earned) and the other operating expense ratio (other operating

expenses divided by net premiums earned).

Diluted Tangible Book Value per Share: Diluted Tangible Book Value per Share focuses on the underlying fundamentals of the Company's financial position and performance without the impact of goodwill or intangible assets. As discussed above, the Company uses this measure as the basis for its prime measure of long-term shareholder value creation, growth in Diluted Tangible Book Value per Share plus dividends. Management believes that Diluted Tangible Book Value per Share aligns the Company's stated long-term objectives with the measure most investors use to evaluate total shareholder value creation and that it focuses on the tangible value of shareholder returns, excluding the impact of goodwill and intangibles. Diluted Tangible Book Value per Share is impacted by the Company's net income or loss, capital resources management and external factors such as foreign exchange, interest rates, credit spreads and equity markets, which can drive changes in realized and unrealized gains or losses on its investment portfolio. 72



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Diluted Tangible Book Value per Share at December 31, 2013 and 2012 and the calculation of the growth in Diluted Tangible Book Value per Share plus dividends for the year ended December 31, 2013 were as follows. As described above, this metric is a long-term performance measure, however, the below table shows the total shareholder value creation for the year ended December 31, 2013 in order for the shareholders to monitor performance. December 31, December 31, 2013 2012 Diluted tangible book value per common share and share equivalents outstanding $ 98.49$ 90.86 Dividends per common share for the year ended December 31, 2013 2.56 Diluted tangible book value per share plus dividends $ 101.05 Growth in diluted tangible book value per share plus dividends 11.2 % The Company's Diluted Tangible Book Value per Share increased by 8.4% to $98.49 at December 31, 2013 from $90.86 at December 31, 2012 primarily due to net income attributable to PartnerRe Ltd. and the accretive impact of the share repurchases, which were partially offset by dividends on the common and preferred shares. The growth in Diluted Tangible Book Value per Share plus dividends was 11.2% during the year ended December 31, 2013. This growth was driven by net income attributable to PartnerRe Ltd., dividends on the common shares and the accretive impact of share repurchases, which were partially offset by realized and unrealized losses from the Company's investment portfolio that were attributable to increases in risk-free rates. Over the past five years, since December 31, 2008, and over the past ten years, since December 31, 2003, the Company has generated a compound annual growth in Diluted Tangible Book Value per Share plus dividends in excess of 14%. The presentation of Diluted Tangible Book Value per Share is a non-GAAP financial measure within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of Diluted Tangible Book Value per Share to the most directly comparable GAAP financial measure, diluted book value per common share and common share equivalents outstanding, at December 31, 2013 and 2012 was as follows (in millions of U.S. dollars): December 31, December 31, 2013 2012



Diluted book value per common share and common share equivalents outstanding (1)

$ 109.26$ 100.84 Less: goodwill and other intangible assets, net of tax 10.77 9.98 Diluted tangible book value per share $ 98.49$ 90.86



(1) Diluted book value per common share and common share equivalents outstanding

(Diluted Book Value per Share) is calculated using common shareholders'

equity attributable to PartnerRe Ltd. (total shareholders' equity less

noncontrolling interests and the aggregate liquidation value of preferred

shares) divided by the weighted average number of common shares and common

share equivalents outstanding (assuming exercise of all stock-based awards

and other dilutive securities).

Operating earnings or loss attributable to PartnerRe Ltd. common shareholders (operating earnings or loss) and operating earnings or loss per common share and common share equivalent outstanding (diluted operating earnings or loss per share): Management uses operating earnings or loss and diluted operating earnings or loss per share to measure its financial performance as these measures focus on the underlying fundamentals of the Company's operations by excluding net realized and unrealized gains or losses on investments (except where the Company has made a strategic investment in an investee whose operations are insurance or reinsurance related and where the Company does not control the investee's activities), net foreign exchange gains or losses, loss on redemption of preferred shares and certain interest in earnings or losses of 73



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equity investments (except where the Company has made a strategic investment in an investee whose operations are insurance or reinsurance related and where the Company does not control the investee's activities). Net realized and unrealized gains or losses on investments in any particular period are not indicative of the performance of, and distort trends in, the Company's business as they predominantly result from general economic and financial market conditions, and the timing of realized gains or losses on investments is largely opportunistic. Net foreign exchange gains or losses are not indicative of the performance of, and distort trends in, the Company's business as they predominantly result from general economic and foreign exchange market conditions. Loss on the redemption of preferred shares is not indicative of the performance of, and distorts trends in, the Company's business as it resulted from general economic and financial market conditions, and the timing of the loss on redemption was largely opportunistic. Interest in earnings or losses of equity investments are also not indicative of the performance of, or trends in, the Company's business where the investee's operations are not insurance or reinsurance related and where the Company does not control the investee companies' activities. Management believes that the use of operating earnings or loss and diluted operating earnings or loss per share enables investors and other users of the Company's financial information to analyze its performance in a manner similar to how Management analyzes performance. Management also believes that these measures follow industry practice and, therefore, allow the users of financial information to compare the Company's performance with its industry peer group, and that the equity analysts and certain rating agencies which follow the Company, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. Operating earnings increased by $58 million, from $664 million in 2012 to $722 million in 2013. The increase was primarily due to an improvement in the Non-life and Life and Health underwriting results, driven by a lower level of large catastrophic and large losses and a higher level of favorable prior year loss development, and partially offset by a higher level of mid-sized loss activity. These increases were partially offset by a decline in net investment income driven by lower reinvestment rates and higher operating expenses driven by restructuring charges. Diluted operating earnings per share increased from $10.43 in 2012 to $12.79 in 2013, driven by the same factors as operating earnings and the accretive impact of share repurchases. Operating earnings increased by $1,306 million, from a loss of $642 million in 2011 to an income of $664 million in 2012 primarily due to an increase in the Non-life underwriting result of $1,429 million, partially offset by an increase in income tax expense on the higher level of operating earnings. Diluted operating earnings per share increased from a loss of $9.50 in 2011 to earnings of $10.43 in 2012, driven by the same factors as operating earnings and the accretive impact of share repurchases.



The other lesser factors contributing to the increases or decreases in operating earnings in 2013 compared to 2012 and in 2012 compared to 2011 are further described in Review of Net Income (Loss) below.

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Operating earnings or loss attributable to PartnerRe Ltd. common shareholders and diluted operating earnings or loss per share are non-GAAP financial measures within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of operating earnings or loss and diluted operating earnings or loss per share to the most directly comparable GAAP financial measure for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars): 2013 2012 2011 Net income (loss) attributable to PartnerRe Ltd. $ 664$ 1,135$ (520 ) Less: Net realized and unrealized investment (losses) gains, net of tax (127 ) 392 15 Net foreign exchange gains, net of tax 2 8 67



Interest in earnings (losses) of equity investments, net of tax

9 9 (7 ) Dividends to preferred shareholders 58 62 47



Operating earnings (loss) attributable to PartnerRe Ltd. common shareholders

$ 722 $



664 $ (642 )

Per diluted share: Net income (loss) attributable to PartnerRe Ltd. common shareholders

$ 10.58$ 16.87$ (8.40 ) Less: Net realized and unrealized investment (losses) gains, net of tax (2.25 ) 6.17 0.23 Net foreign exchange gains, net of tax 0.04 0.13 0.98 Loss on redemption of preferred shares (0.16 ) - -



Interests in earnings (losses) of equity investments 0.16 0.14 (0.11 )

Operating earnings (loss) attributable to PartnerRe Ltd. common shareholders

$ 12.79 $



10.43 $ (9.50 )

Operating ROE: Management uses Operating ROE as a measure of profitability that focuses on the return to common shareholders on an annual basis. To support the Company's growth objectives, most economic decisions, including capital attribution and underwriting pricing decisions, incorporate an Operating ROE impact analysis. For the purpose of that analysis, an appropriate amount of capital (equity) is attributed to each transaction for determining the transaction's priced return on attributed capital. Subject to an adequate return for the risk level as well as other factors, such as the contribution of each risk to the overall risk level and risk diversification, capital is attributed to the transactions generating the highest priced return on deployed capital. Management's challenge consists of (i) attributing an appropriate amount of capital to each transaction based on the risk created by the transaction, (ii) properly estimating the Company's overall risk level and the impact of each transaction on the overall risk level, (iii) assessing the diversification benefit, if any, of each transaction, and (iv) deploying available capital. The risk for the Company lies in mis-estimating any one of these factors, which are critical in calculating a meaningful priced return on deployed capital, and entering into transactions that do not contribute to the Company's growth objectives.



Operating ROE increased modestly from 12.3% in 2012 to 12.7% in 2013. The increase in Operating ROE was primarily due to higher operating earnings in 2013 compared to 2012, as described above, and the accretive impact of share repurchases, which were partially offset by a higher beginning diluted book value per share at January 1, 2013 compared to January 1, 2012. The factors contributing to increases or decreases in operating earnings are described further in Review of Net Income (Loss) below.

Operating ROE increased from a loss of 10.1% in 2011 to an income of 12.3% in 2012. The increase in Operating ROE was primarily due to the increase in operating earnings in 2012 compared to 2011, which was driven by the lower level of catastrophic loss activity. The factors contributing to increases or decreases in operating earnings are described further in Review of Net Income (Loss) below. The average Operating ROE for the last five years and ten years was 8.9% and 11.5%, respectively. Both the five-year and the ten-year averages primarily reflect some years that were impacted by significant catastrophic losses and other years that were not impacted by catastrophes. Due to the volatility related to the 75



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level of catastrophic losses incurred, Management believes that it is more appropriate to measure performance based on an average Operating ROE target over the reinsurance cycle rather than focusing on the results for single periods.

The presentation of Operating ROE is a non-GAAP financial measure within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of Operating ROE to the most directly comparable GAAP financial measure for the years ended December 31, 2013, 2012 and 2011 was as follows: 2013



2012 2011 Return on beginning diluted book value per common share calculated with net income (loss) per share attributable to common shareholders

10.5 % 19.9 % (9.0 )% Less: Net realized and unrealized investment (losses) gains, net of tax, on beginning diluted book value per common share (2.2 )



7.3 0.2 Net foreign exchange gains, net of tax, on beginning diluted book value per common share

-



0.1 1.0 Net interest in earnings (losses) of equity investments, net of tax, on beginning diluted book value per common share

0.2



0.2 (0.1 ) Loss on redemption of preferred shares on beginning diluted book value per common share

(0.2 ) - -



Operating return on beginning diluted book value per common share

12.7 %



12.3 % (10.1 )%

Combined ratio: The combined ratio is used industry-wide as a measure of underwriting profitability for Non-life business. A combined ratio under 100% indicates underwriting profitability, as the total losses and loss expenses, acquisition costs and other operating expenses are less than the premiums earned on that business. While an important metric of underwriting profitability, the combined ratio does not reflect all components of profitability, as it does not recognize the impact of investment income earned on premiums between the time premiums are received and the time loss payments are ultimately made to clients. The key challenges in managing the combined ratio metric consist of (i) focusing on underwriting profitable business even in the weaker part of the reinsurance cycle, as opposed to growing the book of business at the cost of profitability, (ii) diversifying the portfolio to achieve a good balance of business, with the expectation that underwriting losses in certain lines or markets may potentially be offset by underwriting profits in other lines or markets, and (iii) maintaining control over expenses. Since 2003, the Company has had nine years of underwriting profitability reflected in combined ratios of less than 100% for its Non-life segment, with the only exceptions being 2005 and 2011. In 2005, when the industry recorded its worst year in history in terms of catastrophe losses in the U.S., with Hurricane Katrina being the largest insured event ever, the Company recorded a net underwriting loss and Non-life combined ratio of 116.3%. In 2011, when the industry incurred a high frequency of large losses related to the 2011 catastrophic events the Company recorded a net underwriting loss and Non-life combined ratio of 125.4%. The Non-life combined ratio decreased by 2.5 points, from 87.8% in 2012 to 85.3% in 2013. The decrease in the combined ratio in 2013 compared to 2012 was primarily due to a lower level of large catastrophic losses and large losses of 5.3 points (from 8.7 points 2012 to 3.4 points in 2013) and a lower other operating expense ratio of 0.9 points (from 7.0 points in 2012 to 6.1 points in 2013) driven by an increased level of net premiums earned, which were partially offset by a higher level of mid-sized loss activity. The impact on the combined ratio of the catastrophic events for each period is analyzed above.



The Non-life combined ratio decreased by 37.6 points, from 125.4% in 2011 to 87.8% in 2012. The decrease in the combined ratio in 2012 compared to 2011 primarily reflected a decrease in the impact of large

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catastrophic losses and large losses of 36.5 points (from 45.2 points in 2011 to 8.7 points in 2012). The impact on the combined ratio by catastrophic event for each year is analyzed above.



The other lesser factors contributing to increases or decreases in the combined ratio for all years presented are described further in Review of Net Income (Loss) below.

The Company uses the combined ratio to measure its overall underwriting profitability for its Non-life segment as a whole. Given the Company does not allocate operating expenses to its Non-life sub-segments, Management measures the underwriting profitability of the Non-life sub-segments by using the technical result and technical ratio as described in Results by Segment below.



Other Key Financial Measures

In addition to using the growth in Diluted Tangible Book Value per Share plus dividends as the Company's prime financial long-term measure, and diluted tangible book value per common share and common share equivalents outstanding (Diluted Tangible Book Value per Share) as the basis for this measure, the Company uses other metrics to monitor its financial performance and to measure total shareholder value. Other such metrics used by Management include, but are not limited to, diluted book value per common share and common share equivalents outstanding (Diluted Book Value per Share) and Diluted Tangible Book Value per Share plus the discount in Non-life loss reserves per common share and common share equivalents outstanding (Diluted Tangible Book Value plus the discount in Non-life reserves). Diluted Book Value per Share is a similar metric to Diluted Tangible Book Value per Share, except that it includes the impact on book value of goodwill and intangible assets. Diluted Tangible Book Value plus the discount in Non-life loss reserves is a shorter-term metric that adjusts the Company's Diluted Tangible Book Value per Share for the impact that changes in interest rates have on the time value of money that is embedded in the Company's Non-life loss reserves. Comment on Non-GAAP Measures Throughout this filing, the Company's results of operations have been presented in the way that Management believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use financial information in evaluating the performance of the Company. This presentation includes the use of Diluted Tangible Book Value per Share, Diluted Tangible Book Value per Share plus dividends, operating earnings or loss, diluted operating earnings or loss per share and Operating ROE that are not calculated under standards or rules that comprise U.S. GAAP. These measures are referred to as non-GAAP financial measures within the meaning of Regulation G. Management believes that these non-GAAP financial measures are important to investors, analysts, rating agencies and others who use the Company's financial information and will help provide a consistent basis for comparison between years and for comparison with the Company's peer group, although non-GAAP measures may be defined or calculated differently by other companies. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable U.S. GAAP financial measures, diluted book value per share, net income or loss and return on beginning common shareholders' equity calculated with net income or loss attributable to common shareholders, is presented above.



Critical Accounting Policies and Estimates

The Company's Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following presents a discussion of those accounting policies and estimates that Management believes are the most critical to its operations and require the most difficult, subjective and complex judgment. If actual events differ significantly from the underlying assumptions and 77



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estimates used by Management, there could be material adjustments to prior estimates that could potentially adversely affect the Company's results of operations, financial condition and liquidity. These critical accounting policies and estimates should be read in conjunction with the Notes to Consolidated Financial Statements, including Note 2, Significant Accounting Policies, for a full understanding of the Company's accounting policies. The sensitivity estimates that follow are based on outcomes that the Company considers reasonably likely to occur.

Losses and Loss Expenses and Life Policy Benefits

Losses and Loss Expenses

Because a significant amount of time can elapse between the assumption of risk, occurrence of a loss event, the reporting of the event to an insurance company (the primary company or the cedant), the subsequent reporting to the reinsurance company (the reinsurer) and the ultimate payment of the claim on the loss event by the reinsurer, the Company's liability for unpaid losses and loss expenses (loss reserves) is based largely upon estimates. The Company categorizes loss reserves into three types of reserves: reported outstanding loss reserves (case reserves), additional case reserves (ACRs) and IBNR. The Company updates its estimates for each of the aforementioned categories on a quarterly basis using information received from its cedants. Case reserves represent unpaid losses reported by the Company's cedants and recorded by the Company. ACRs are established for particular circumstances where, on the basis of individual loss reports, the Company estimates that the particular loss or collection of losses covered by a treaty may be greater than those advised by the cedant. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves and ACRs. Unlike case reserves and ACRs, IBNR reserves are often calculated at an aggregated level and cannot usually be directly identified as reserves for a particular loss or treaty. The Company also estimates the future unallocated loss adjustment expenses (ULAE) associated with the loss reserves and these form part of the Company's loss adjustment expense reserves. The Company's Non-life loss reserves for each category, line and sub-segment are reported in the tables included later in this section. The amount of time that elapses before a claim is reported to the cedant and then subsequently reported to the reinsurer is commonly referred to in the industry as the reporting tail. Lines of business for which claims are reported quickly are commonly referred to as short-tail lines; and lines of business for which a longer period of time elapses before claims are reported to the reinsurer are commonly referred to as long-tail lines. In general, for reinsurance, the time lags are longer than for primary business due to the delay that occurs between the cedant becoming aware of a loss and reporting the information to its reinsurer(s). The delay varies by reinsurance market (country of cedant), type of treaty, whether losses are first paid by the cedant and the size of the loss. The delay could vary from a few weeks to a year or sometimes longer. The Company considers agriculture, catastrophe, energy, property, motor business written in the U.S., proportional motor business written outside of the U.S., specialty property and structured risk to be short-tail lines; aviation/space, credit/surety, engineering, marine and multiline to be medium-tail lines; and casualty, non-proportional motor business written outside of the U.S. and specialty casualty to be long-tail lines of business. For all lines, the Company's objective is to estimate ultimate losses and loss expenses. Total loss reserves are then calculated by subtracting losses paid. Similarly, IBNR reserves are calculated by subtraction of case reserves and ACRs from total loss reserves. The Company analyzes its ultimate losses and loss expenses after consideration of the loss experience of various reserving cells. The Company assigns treaties to reserving cells and allocates losses from the treaty to the reserving cell. The reserving cells are selected in order to ensure that the underlying treaties have homogeneous loss development characteristics (e.g., reporting tail) but are large enough to make estimation of trends credible. The selection of reserving cells is reviewed annually and changes over time as the business of the Company evolves. For each reserving cell, the Company tabulates losses in reserving triangles that show the total reported or paid claims at each financial year end by underwriting year cohort. An underwriting year is the year during which the reinsurance treaty was entered into as opposed to the year in which the loss occurred (accident year), or the calendar year for which financial results are reported. For each reserving cell, the Company's estimates of 78



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loss reserves are reached after a review of the results of several commonly accepted actuarial projection methodologies. In selecting its best estimate, the Company considers the appropriateness of each methodology to the individual circumstances of the reserving cell and underwriting year for which the projection is made. The methodologies that the Company employs include, but may not be limited to, paid and reported Chain Ladder methods, Expected Loss Ratio method, paid and reported Bornhuetter-Ferguson (B-F) methods, and paid and reported Benktander methods. In addition, the Company uses other methodologies to estimate liabilities for specific types of claims. For example, internal and vendor catastrophe models are typically used in the estimation of loss and loss expenses at the early stages of catastrophe losses before loss information is reported to the reinsurer. In the case of asbestos and environmental claims, the Company has established reserves for future losses and allocated loss expenses based on the results of periodic actuarial studies, which consider the underlying exposures of the Company's cedants. The reserve methodologies employed by the Company are dependent on data that the Company collects. This data consists primarily of loss amounts and loss payments reported by the Company's cedants, and premiums written and earned reported by cedants or estimated by the Company. The actuarial methods used by the Company to project loss reserves that it will pay in the future do not generally include methodologies that are dependent on claim counts reported, claim counts settled or claim counts open as, due to the nature of the Company's business, this information is not routinely provided by cedants for every treaty.



A brief description of the reserving methods commonly employed by the Company and a discussion of their particular advantages and disadvantages follows:

Chain Ladder (CL) Development Methods (Reported or Paid)

These methods use the underlying assumption that losses reported (paid) for each underwriting year at a particular development stage follow a stable pattern. For example, the CL development method assumes that on average, every underwriting year will display the same percentage of ultimate liabilities reported by the Company's cedants (say x%) at 24 months after the inception of the underwriting year. The percentages reported (paid) are established for each development stage (e.g., at 12 months, 24 months, etc.) after examining historical averages from the loss development data. These are sometimes supplemented by external benchmark information. Ultimate liabilities are estimated by multiplying the actual reported (paid) losses by the reciprocal of the assumed reported (paid) percentage (e.g., 1/x%). Reserves are then calculated by subtracting paid claims from the estimated ultimate liabilities. The main strengths of the method are that it is reactive to loss emergence (payments) and that it makes full use of historical experience on claim emergence (payments). For homogeneous low volatility lines, under stable economic conditions the method can often produce good estimates of ultimate liabilities and reserves. However, the method has weaknesses when the underlying assumption of stable patterns is not true. This may be the consequence of changes in the mix of business, changes in claim inflation trends, changes in claim reporting practices or the presence of large claims, among other things. Furthermore, the method tends to produce volatile estimates of ultimate liabilities in situations where there is volatility in reported (paid) patterns. In particular, when the expected percentage reported (paid) is low, small deviations between actual and expected claims can lead to very volatile estimates of ultimate liabilities and reserves. Consequently, this method is often unsuitable for projections at early development stages of an underwriting year. Finally, the method fails to incorporate any information regarding market conditions, pricing, etc., which could improve the estimate of liabilities and reserves. It therefore tends not to perform very well in situations where there are rapidly changing market conditions.



Expected Loss Ratio (ELR) Method

This method estimates ultimate losses for an underwriting year by applying an estimated loss ratio to the earned premium for that underwriting year. Although the method is insensitive to actual reported or paid losses, it can often be useful at the early stages of development when very few losses have been reported or paid, and the 79



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principal sources of information available to the Company consist of information obtained during pricing and qualitative information supplied by the cedant. However, the lack of sensitivity to reported or paid losses means that the method is usually inappropriate at later stages of development.

Bornhuetter-Ferguson (B-F) Methods (Reported or Paid)

These methods aim to address the concerns of the Chain Ladder Development methods, which are the variability at early stages of development and the failure to incorporate external information such as pricing. However, the B-F methods are more sensitive to reported and paid losses than the Expected Loss Ratio method, and can be seen as a blend of the Expected Loss Ratio and Chain Ladder development methods. Unreported (unpaid) claims are calculated using an expected reporting (payment) pattern and an externally determined estimate of ultimate liabilities (usually determined by multiplying an a priori loss ratio with estimates of premium volume). The accuracy of the a priori loss ratio is a critical assumption in this method. Usually a priori loss ratios are initially determined on the basis of pricing information, but may also be adjusted to reflect other information that subsequently emerges about underlying loss experience. Although the method tends to provide less volatile indications at early stages of development and reflects changes in the external environment, this method can be slow to react to emerging loss development (payment). In particular, to the extent that the a priori loss ratios prove to be inaccurate (and are not revised), the B-F methods will produce loss estimates that take longer to converge with the final settlement value of loss liabilities.



Benktander (B-K) Methods (Reported or Paid)

These methods can be viewed as a blend between the Chain Ladder Development and the B-F methods described above. The blend is based on predetermined weights at each development stage that depend on the reported (paid) development patterns.



Although mitigated to some extent, this method still exhibits the same advantages and disadvantages as the B-F method, but the mechanics of the calculation imply that it is more reactive to loss emergence (payment) than the B-F method.

Loss Event Specific Method The ultimate losses estimated under this method are derived from estimates of specific events based on reported claims, client and broker discussions, review of potential exposures, market loss estimates, modeled analysis and other event specific criteria. Method Weights In determining the loss reserves, the Company often relies on a blend of the results from two or more methods (e.g., weighted averages). The judgment as to which of the above method(s) is most appropriate for a particular underwriting year and reserving cell could change over time as new information emerges regarding underlying loss activity and other data issues. Furthermore, as each line is typically composed of several reserving cells, it is likely that the reserves for the line will be dependent on several reserving methods. This is because reserves for a line are the result of aggregating the reserves for each constituent reserving cell and that a different method could be selected for each reserving cell. Although it is not appropriate to refer to reserves for a line as being determined by a particular method, the table below summarizes the methods that were given principal weight in selecting the best estimates of reserves in each reserving line and can therefore be viewed as key drivers of selected reserves. The table distinguishes methods for mature and immature underwriting years, as they are often different. The definition of maturity is specific to a line and is related to the reporting tail. If at the reserve evaluation date, a significant proportion of losses for the underwriting year are expected to have been reported, then the underwriting year is deemed to be mature, otherwise it is deemed to be immature. For short-tail lines, such as property or agriculture, immature years can refer to the one or two most recent underwriting years, while for longer tail lines, such as casualty, immature years can refer to the three or four most recent underwriting years. 80



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The principal reserving methods used for the major components of each reserving line are as follows: Immature Mature Non-life Underwriting Underwriting Reserving line sub-segment Years Years Agriculture North America and Expected Loss Ratio /Reported



Reported B-F /Reported CL

Global Specialty B-F



Aviation / Space Global Specialty Expected Loss Ratio /Reported

Reported B-F / Reported CL

B-F Casualty North America Expected Loss Ratio Reported B-F Casualty / Specialty Global (Non-U.S.) Expected Loss Ratio / Reported B-F / Reported CL Casualty P&C and Reported B-F /Reported B-K Global Specialty Catastrophe Catastrophe Expected Loss Ratio Loss event specific based on exposure analysis / Loss event specific Credit / Surety North America and Expected Loss Ratio /Reported



Reported B-F / Reported CL

Global Specialty B-F Energy Onshore Global Specialty Expected Loss Ratio /Reported



Reported CL / Reported B-F/

B-F



Reported B-K

Engineering Global Specialty Expected Loss Ratio /Reported



Reported B-F / Reported CL

B-F



Marine / Energy Global Specialty Reported B-F /Expected Loss

Reported B-F / Reported CL Offshore Ratio Motor North America Expected Loss Ratio



Expected Loss Ratio /Reported

B-F

Motor-Non-proportional Global (Non-U.S.) Expected Loss Ratio /

Reported B-F / Reported CL

P&C Reported B-F / Paid B-F



Motor-Proportional Global (Non-U.S.) Expected Loss Ratio /

Reported B-F / Reported CL

P&C Reported B-F / Paid B-F Multiline North America Expected Loss Ratio /Reported Reported B-F B-F Property North America Reported B-F /Expected Loss



Reported B-F / Loss event

Ratio



specific

Property / Specialty Global (Non-U.S.) Expected Loss Ratio /

Reported CL / Reported B-F Property P&C and Reported B-F/Reported B-K / Reported B-K Global Specialty Other North America, Periodic actuarial studies

Periodic actuarial studies Global (Non-U.S.) P&C and Global Specialty



The reserving methods used by the Company are dependent on a number of key parameter assumptions. The principal parameter assumptions underlying the methods used by the Company are:

the loss development factors used to form an expectation of the evolution

of reported and paid claims for several years following the inception of

the underwriting year. These are often derived by examining the Company's

data after due consideration of the underlying factors listed below. In

some cases, where the Company lacks sufficient volume to have statistical

credibility, external benchmarks are used to supplement the Company's

data;



the tail factors used to reflect development of paid and reported losses

after several years have elapsed since the inception of the underwriting

year; the a priori loss ratios used as inputs in the B-F methods; and



the selected loss ratios used as inputs in the Expected Loss Ratio method.

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As an example of the sensitivity of the Company's reserves to reserving parameter assumptions by reserving line, the effect on the Company's reserves of higher/lower a priori loss ratio selections, higher/lower loss development factors and higher/lower tail factors based on amounts recorded at December 31, 2013 was as follows: Higher Lower Higher loss Higher Lower loss Lower a priori development tail a priori development tail Reserving lines selected assumptions loss ratios factors factors (1) loss ratios factors factors (1) Agriculture 5 points 3 months 2 % (5) points (3) months (2 )% Aviation / Space 5 3 5 (5 ) (3 ) (5 ) Casualty / Specialty Casualty 10 6 10 (10 ) (6 ) (10 ) Catastrophe 5 3 2 (5 ) (3 ) (2 ) Credit / Surety 5 3 2 (5 ) (3 ) (2 ) Energy Onshore 5 3 2 (5 ) (3 ) (2 ) Engineering 10 6 5 (10 ) (6 ) (5 ) Marine / Energy Offshore 5 3 5 (5 ) (3 ) (5 ) Motor-Non-U.S. Non-proportional business 10 12 10 (10 ) (12 ) (10 ) Motor-Non-U.S. Proportional business 5 3 2 (5 ) (3 ) (2 ) Motor-North America business 5 3 2 (5 ) (3 ) (2 ) Multiline 5 6 5 (5 ) (6 ) (5 ) Property / Specialty Property 5 3 2 (5 ) (3 ) (2 ) Higher Lower Higher loss Higher Lower loss Lower Reserving lines selected sensitivity a priori development tail a priori development tail (in millions of U.S. dollars) loss ratios factors factors (1) loss ratios factors factors (1) Agriculture $ 35 $ 15 $ - $ (35 ) $ (5 ) $ - Aviation / Space 15 25 15 (15 ) (20 ) (10 ) Casualty / Specialty Casualty 340 120 245 (340 ) (80 ) (215 ) Catastrophe 5 - - (5 ) - - Credit / Surety 25 35 5 (25 ) (15 ) (5 ) Energy Onshore 5 10 - (5 ) (5 ) - Engineering 35 50 45 (35 ) (40 ) (30 ) Marine / Energy Offshore 30 40 10 (30 ) (30 ) (5 ) Motor-Non-U.S. Non-proportional business 30 20 45 (30 ) (25 ) (50 ) Motor-Non-U.S. Proportional business 15 5 5 (15 ) - (5 ) Motor-North America business 10 5 15 (10 ) (5 ) (5 ) Multiline 10 15 25 (10 ) (10 ) (20 ) Property / Specialty Property 60 90 - (60 ) (55 ) -



(1) Tail factors are defined as aggregate development factors after 10 years from

the inception of an underwriting year.

The Company believes that the illustrated sensitivities to the reserving parameter assumptions are indicative of the potential variability inherent in the estimation process of those parameters. Some reserving lines show little sensitivity to a priori loss ratio, loss development factor or tail factor as the Company may use reserving methods such as the Expected Loss Ratio method in several of its reserving cells within those lines. It is not appropriate to sum the total impact for a specific factor or the total impact for a specific reserving line as the lines of business are not perfectly correlated. The validity of all parameter assumptions used in the reserving process is reaffirmed on a quarterly basis. Reaffirmation of the parameter assumptions means that the actuaries determine that the parameter assumptions continue to form a sound basis for projection of future liabilities. Parameter assumptions used in projecting future 82



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liabilities are themselves estimates based on historical information. As new information becomes available (e.g., additional losses reported), the Company's actuaries determine whether a revised estimate of the parameter assumptions that reflects all available information is consistent with the previous parameter assumptions employed. In general, to the extent that the revised estimate of the parameter assumptions are within a close range of the original assumptions, the Company determines that the parameter assumptions employed continue to form an appropriate basis for projections and continue to use the original assumptions in its models. In this case, any differences could be attributed to the imprecise nature of the parameter estimation process. However, to the extent that the deviations between the two sets of estimates are not within a close range of the original assumptions, the Company reacts by adopting the revised assumptions as a basis for its reserve models. Notwithstanding the above, even where the Company has experienced no material deviations from its original assumptions during any quarter, the Company will generally revise the reserving parameter assumptions at least once a year to reflect all accumulated available information. In addition to examining the data, the selection of the parameter assumptions is dependent on several underlying factors. The Company's actuaries review these underlying factors and determine the extent to which these are likely to be stable over the time frame during which losses are projected, and the extent to which these factors are consistent with the Company's data. If these factors are determined to be stable and consistent with the data, the estimation of the reserving parameter assumptions are mainly carried out using actuarial and statistical techniques applied to the Company's data. To the extent that the actuaries determine that they cannot continue to rely on the stability of these factors, the statistical estimates of parameter assumptions are modified to reflect the direction of the change. The main underlying factors upon which the estimates of reserving parameters are predicated are: the cedant's business practices will proceed as in the past with no material changes either in submission of accounts or cash flows;



any internal delays in processing accounts received by the cedant are not

materially different from that experienced historically, and hence the

implicit reserving allowance made in loss reserves through the methods

continues to be appropriate; case reserve reporting practices, particularly the methodologies used to

establish and report case reserves, are unchanged from historical practices;



the Company's internal claim practices, particularly the level and extent

of use of ACRs are unchanged;



historical levels of claim inflation can be projected into the future and

will have no material effect on either the acceleration or deceleration of

claim reporting and payment patterns; the selection of reserving cells results in homogeneous and credible

future expectations for all business in the cell and any changes in underlying treaty terms are either reflected in cell selection or explicitly allowed in the selection of trends;



in cases where benchmarks are used, they are derived from the experience

of similar business; and



the Company can form a credible initial expectation of the ultimate loss

ratio of recent underwriting years through a review of pricing

information, supplemented by qualitative information on market events.

The Company's best estimate of total loss reserves is typically in excess of the midpoint of the actuarial ultimate liability estimate. The Company believes that there is potentially significant risk in estimating loss reserves for long-tail lines of business and for immature underwriting years that may not be adequately captured through traditional actuarial projection methodologies as these methodologies usually rely heavily on projections of prior year trends into the future. In selecting its best estimate of future liabilities, the Company considers both the results of actuarial point estimates of loss reserves as well as the potential variability of these estimates as captured by a reasonable range of actuarial liability estimates. The selected best estimates of reserves are always 83



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within the reasonable range of estimates indicated by the Company's actuaries. In determining the appropriate best estimate, the Company reviews (i) the position of overall reserves within the actuarial reserve range, (ii) the result of bottom up analysis by underwriting year reflecting the impact of parameter uncertainty in actuarial calculations, and (iii) specific qualitative information on events that may have an effect on future claims but which may not have been adequately reflected in actuarial estimates, such as potential for outstanding litigation, claims practices of cedants, etc. During 2013, 2012 and 2011, the Company reviewed its estimate for prior year losses for the Non-life segment (defined below in Results by Segment) and, in light of developing data, adjusted its ultimate loss ratios for prior accident years. The net prior year favorable loss development for each sub-segment of the Company's Non-life segment for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars): 2013



2012 2011

Net Non-life prior year favorable loss development:

North America $ 223$ 218$ 189 Global (Non-U.S.) P&C 180 114 116 Global Specialty 227 251 129 Catastrophe 91 45 96



Total net Non-life prior year favorable loss development $ 721$ 628$ 530

The net Non-life prior year favorable loss development for the years ended December 31, 2013, 2012 and 2011 was driven by the following factors (in millions of U.S. dollars):

2013



2012 2011 Net Non-life prior year (adverse) favorable loss development: Net prior year loss development due to changes in premiums (1) $ (71 )

$ (94 )$ (59 ) Net prior year loss development due to all other factors (2) 792



722 589

Total net Non-life prior year favorable loss development $ 721

$ 628$ 530



(1) Net prior year reserve development due to changes in premiums includes, but

it is not limited to, the impact to prior years' reserves associated with

increases in the estimated or actual premium exposure reported by cedants.

(2) Net prior year reserve development due to all other factors includes, but is

not limited to, loss experience, changes in assumptions and changes in

methodology.

For a discussion of net prior year favorable loss development by Non-life sub-segment, see Results by Segment below and Note 8 to Consolidated Financial Statements in Item 8 of Part II of this report.

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The net prior year favorable loss development for the year ended December 31, 2013 by reserving line for the Company's Non-life segment was as follows (in millions of U.S. dollars): Net favorable prior year loss Reserving lines development Agriculture $ 7 Aviation / Space 71 Casualty / Specialty Casualty 250 Catastrophe 91 Credit / Surety 9 Energy Onshore 15 Engineering 7 Marine / Energy Offshore 60

Motor-Non-U.S. Non-proportional business



21

Motor-Non-U.S. Proportional business



7

Motor-North America business



10

Multiline



17

Property / Specialty Property



148

Other



8

Total net Non-life prior year favorable loss development $ 721

Actual losses paid and reported compared with the Company's expectations, and the changes of the Company's reserving parameter assumptions in response to the emerging development for each reserving line during the year ended December 31, 2013 were as follows: Agriculture: Aggregate losses reported in 2013 for North America business related to the 2012 underwriting year were a modest amount above the Company's expectations. In addition, the Company's Global Specialty agriculture business experienced lower than expected reported losses. The Company increased its loss ratios for the North America business and lowered its loss ratios for the Global Specialty business, however, it did not otherwise materially alter its reserving assumptions.



Aviation / Space: Aggregate losses reported in 2013 were significantly lower than the Company's expectations. The Company reflected this experience by selecting lower loss ratios for underwriting years 2008 to 2012.

Casualty / Specialty Casualty: Aggregate losses reported in 2013 for North America business were below the Company's expectations as losses for underwriting years 2009 and prior continue to emerge at levels significantly below expectations. Aggregate losses reported in 2013 for both Global (Non-U.S.) P&C and Global Specialty sub-segments were below the Company's expectations for most prior underwriting years. The Company reflected this experience by reducing the selected loss ratios for these underwriting years. Catastrophe: Reserves established for the catastrophe line are primarily a function of the presence or absence of catastrophic events during the year, and the complexity and uncertainty associated with estimating unpaid losses from these large disclosed events. In addition, reserves are established in consideration of mid-sized and attritional loss events that occur during a year. In aggregate, the Company has not significantly changed its loss estimates for the Japan Earthquake and the 2010 and the February and June 2011 New Zealand Earthquakes, although it did modestly reduce the unallocated IBNR recorded in 2011 specifically for these events during 2013 (see below for more details). In addition, the Company has recorded modest reductions in ultimate loss estimates during 2013 for a number of prior year loss events across several underwriting years to reflect lower loss emergence. Credit / Surety: Aggregate losses reported in 2013 were modestly higher than expected for North America business, giving rise to a modest level of adverse development. For the Company's Global 85



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Specialty business, loss development during 2013 was better than expected for Credit and Surety business combined, primarily for the underwriting years 2009 to 2012. The Company reduced its loss ratios for these recent underwriting years to reflect the lower than expected loss emergence. This was partially offset by adverse development in the older underwriting years.



Energy Onshore: Aggregate losses reported in 2013 were lower than expected across most underwriting years. The Company reflected the favorable development by reducing its loss ratios for most underwriting years.

Engineering: Aggregate losses reported in 2013 were lower than expected and the Company reflected this experience by selecting lower loss ratios. The lower than expected losses were partially offset by increases in premium adjustments for proportional business reflecting increased exposure on several underwriting years. Marine / Energy Offshore: Aggregate losses reported in 2013 were significantly lower than expected and impacted most underwriting years driven entirely by the Energy Offshore business. The Company reduced its loss ratios for all underwriting years to reflect the lower than expected loss emergence. Motor: Aggregate losses reported in 2013 for the Global (Non-U.S.) P&C motor non-proportional line were lower than expected resulting in



the

Company reducing its loss ratios. The Company further



increased its

weightings to more experience-based indications resulting in



further

prior year releases on underwriting years 2002 to 2007. Aggregate losses reported in 2013 for the Global (Non-U.S.) P&C motor proportional line were modestly lower than expectations in



aggregate,

allowing the Company to select lower loss ratios on some underwriting years. Aggregate losses reported in 2013 for the North America motor line

were lower than expected resulting in the Company reducing its loss ratios.



Multiline: Aggregate reported losses in 2013 were lower than expected for North America business for underwriting years 2012 and prior, resulting in modest levels of reserve releases.

Property / Specialty Property: Aggregate reported losses in 2013 were lower than expected for North America business and were driven by loss activity related to large property events and attritional property losses from most underwriting years. Aggregate losses reported in 2013 in the Global (Non-U.S.) P&C and Global Specialty property lines were significantly lower than expected for most underwriting years. The Company reflected this experience by reducing its loss ratios for most underwriting years. 86



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The gross reserves reported by cedants (case reserves), those estimated by the Company (ACRs and IBNR reserves) and the total gross, ceded and net loss reserves recorded at December 31, 2013 by reserving line for the Company's Non-life operations were as follows (in millions of U.S. dollars):

Total gross Total net IBNR loss reserves Ceded loss loss reserves Reserving lines Case reserves ACRs reserves recorded reserves recorded Agriculture $ 32 $ 8$ 591 $ 631 $ - $ 631 Aviation / Space 217 4 196 417 (38 ) 379 Casualty / Specialty Casualty 1,478 126 2,550 4,154 (26 ) 4,128 Catastrophe 406 191 118 715 (52 ) 663 Credit / Surety 331 (5 ) 174 500 - 500 Energy Onshore 134 4 73 211 (4 ) 207 Engineering 313 6 203 522 (21 ) 501 Marine / Energy Offshore 315 12 439 766 (117 ) 649 Motor-Non-U.S. Non-proportional business 455 6 390 851 (6 ) 845 Motor-Non-U.S. Proportional business 121 1 104 226 (2 ) 224 Motor-North America business 83 2 86 171 - 171 Multiline 83 15 110 208 - 208 Property / Specialty Property 692 33 504 1,229 (1 ) 1,228 Other 3 - 42 45 - 45 Total Non-life reserves $ 4,663 $ 403$ 5,580$ 10,646$ (267 )$ 10,379 The net loss reserves represent the Company's best estimate of future losses and loss expense amounts based on the information available at December 31, 2013. Loss reserves rely upon estimates involving actuarial and statistical projections at a given time that reflect the Company's expectations of the costs of the ultimate settlement and administration of claims. Estimates of ultimate liabilities are contingent on many future events and the eventual outcome of these events may be different from the assumptions underlying the reserve estimates. In the event that the business environment and social trends diverge from historical trends, the Company may have to adjust its loss reserves to amounts falling significantly outside its current estimate. These estimates are continually reviewed and the ultimate liability may be in excess of, or less than, the amounts provided, for which any adjustments will be reflected in the period in which the need for an adjustment is determined. The Company's best estimates are point estimates within a reasonable range of actuarial liability estimates. These ranges are developed using stochastic simulations and techniques and provide an indication as to the degree of variability of the loss reserves. The Company interprets the ranges produced by these techniques as confidence intervals around the point estimates for each Non-life sub-segment. However, due to the inherent volatility in the business written by the Company, there can be no assurance that the final settlement of the loss reserves will fall within these ranges. 87



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The point estimates related to net loss reserves recorded by the Company and the range of actuarial estimates at December 31, 2013 and 2012 for each Non-life sub-segment were as follows (in millions of U.S. dollars): Recorded Point Estimate High Low



2013 Net Non-life sub-segment loss reserves:

North America $ 3,517 $ 3,644$ 2,879 Global (Non-U.S.) P&C 2,427 2,644 2,045 Global Specialty 3,772 3,984 3,250 Catastrophe 663 675 534



2012 Net Non-life sub-segment loss reserves:

North America $ 3,351 $ 3,503$ 2,646 Global (Non-U.S.) P&C 2,490 2,616 2,132 Global Specialty 3,670 3,795 3,205 Catastrophe 907 922 744



It is not appropriate to add together the ranges of each sub-segment in an effort to determine a high and low range around the Company's total Non-life carried loss reserves.

Of the Company's $10,379 million of net Non-life loss reserves at December 31, 2013, net loss reserves for accident years 2005 and prior of $727 million are guaranteed by ColisÉe Re, pursuant to the Reserve Agreement. The Company is not subject to any loss reserve variability associated with the guaranteed reserves. See Business-Reserves in Item 1 of Part I this report. A significant amount of judgment was used to estimate the range of potential losses related to the New Zealand Earthquakes and the Japan Earthquake, and there remains a considerable degree of uncertainty related to the range of possible ultimate losses associated with the New Zealand Earthquakes. Loss estimates arising from earthquakes are inherently more uncertain than those from other catastrophic events and the Company believes the ultimate losses arising from the New Zealand Earthquakes and the Japan Earthquake may be materially in excess of, or less than, the amounts provided for in the Consolidated Balance Sheet at December 31, 2013. The remaining significant risks and uncertainties related to the New Zealand Earthquakes include the ongoing cedant revisions of loss estimates for each of these events, the degree to which inflation impacts construction materials required to rebuild affected properties, the characteristics of the Company's program participation for certain affected cedants and potentially affected cedants, and the expected length of the claims settlement period. In addition, there is additional complexity related to the New Zealand Earthquakes given multiple earthquakes occurred in the same region in a relatively short period of time, resulting in cedants continuing to revise their allocation of losses between the various events and between different treaties, under which the Company may provide different amounts of coverage. While the Company remains cautious regarding the estimated ultimate losses from the Japan Earthquake, as time has passed the estimates received from the Company's cedants have stabilized, paid losses have increased and the remaining complexities have reduced. In addition to the sum of the point estimates originally recorded for each of the New Zealand Earthquakes and Japan Earthquake, at December 31, 2011 the Company recorded additional gross reserves of $50 million (net reserves of $48 million after the impact of retrocession) specifically related to these events within its Catastrophe sub-segment. The additional gross reserves recorded were in consideration of the number of events, the complexity of certain events and the continuing uncertainties in estimating the ultimate losses for these events in the aggregate. The Company continues to evaluate the additional gross reserves that were recorded as part of its 88



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periodic reserving process and changes to the amounts recorded may either result in: (i) the reallocation of some or all of the additional reserves to one or more of the these events; or (ii) the release of some or all of the additional reserves to net income in future periods; or (iii) an increase in additional reserves recorded. During the year ended December 31, 2013, the Company cautiously reduced the additional gross reserves by $10 million to $40 million, primarily reflecting the reduced level of uncertainty associated with the Japan Earthquake in the first half of 2013. As a result of further cedant revisions to loss estimates and cedants reallocating their losses between the different New Zealand Earthquakes during the latter half of 2013, the Company determined to maintain the additional gross reserves of $40 million at December 31, 2013 and have primarily allocated this remaining reserve to the New Zealand Earthquakes to reflect the continuing uncertainty related to these events described above. Based upon information currently available and the estimated range of potential ultimate liabilities, the Company believes that unpaid loss and loss expense reserves contemplate a reasonable provision for the remaining exposure related to the New Zealand Earthquakes and Japan Earthquake. Included in the business that is considered to have a long reporting tail is the Company's exposure to asbestos and environmental claims. The Company's net reserves for unpaid losses and loss expenses at December 31, 2013 included $193 million that represents estimates of its net ultimate liability for asbestos and environmental claims. The gross liability for such claims at December 31, 2013 was $203 million, which primarily relates to Paris Re's gross liability for asbestos and environmental claims for accident years 2005 and prior of $123 million, with any favorable or adverse development being subject to the Reserve Agreement. Of the remaining $80 million in gross reserves, the majority relates to casualty exposures in the United States arising from business written by the French branch of PartnerRe Europe and PartnerRe U.S. Ultimate loss estimates for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the amount of the Company's potential losses for these claims. In view of the legal and tort environment that affect the development of such claims, the uncertainties inherent in estimating asbestos and environmental claims are not likely to be resolved in the near future. There can be no assurance that the reserves established by the Company will not be adversely affected by development of other latent exposures, and further, there can be no assurance that the reserves established by the Company will be adequate. The Company does, however, actively evaluate potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific issues that would materially affect its unpaid losses and loss expense reserves related to this exposure (see Note 8 to Consolidated Financial Statements in Item 8 of Part II of this report).



Life Policy Benefits

Policy benefits for life and annuity contracts relate to the business in the Company's Life and Health segment, which predominantly includes:

reinsurance of longevity, subdivided into standard and non-standard

annuities; mortality business, which includes death and disability covers (with



various riders) primarily written in Continental Europe, TCI primarily

written in the U.K. and Ireland, and GMDB business primarily written in

Continental Europe; and effective December 31, 2012, following the acquisition of PartnerRe



Health, the Company also writes specialty accident and health business,

including Health Maintenance Organizations (HMO) reinsurance, medical reinsurance and provider and employer excess of loss programs. The Company categorizes life reserves into three types of reserves: case reserves, IBNR and reserves for future policy benefits. Case reserves represent unpaid losses reported by the Company's cedants and recorded by the Company. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves. Reserves 89



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for future policy benefits, which relate to future events occurring on policies in force over an extended period of time, are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with U.S. GAAP and applicable actuarial standards. Principal assumptions used in the establishment of reserves for future policy benefits have been determined based upon information reported by ceding companies, supplemented by the Company's actuarial estimates of mortality, critical illness, persistency and future investment income, with appropriate provision to reflect uncertainty. Case reserves, IBNR reserves and reserves for future policy benefits are generally calculated at the treaty level. The Company updates its estimates for each of the aforementioned categories on a periodic basis using information received from its cedants. The Company's reserving practices begin with the categorization of the contracts written as short duration, long duration, or universal life business for U.S. GAAP reserving purposes. This categorization determines the Company's reserving methodology which is described by line of business below.



Longevity

The reserves for the annuity portfolio of reinsurance contracts within the longevity book are established in accordance with the provisions for long duration insurance contracts under U.S. GAAP. Many of these contracts subject the Company to risks arising from policyholder mortality over a period that extends beyond the periods in which premiums are collected. For long duration contracts, the Company establishes initial reserves based upon Management's best estimate of policy benefits and includes a provision for adverse deviation. Management's best estimate relies upon actuarial indications of future policy benefits. The provision for adverse deviation contemplates reasonable deviations from the best estimate assumptions for the key risk elements relevant to the product being evaluated, including mortality expenses, and discount rate among others, and are recorded in accordance with U.S. GAAP and applicable actuarial standards. The Company's actuaries annually verify the current reserving assumptions in consideration of evolving experience and the actuarial indications for assumptions relating to future policy benefits, including mortality and future investment income, among others. Management makes no adjustments to recorded deferred acquisition costs or future policy benefits if the actuarial indications conclude that current recorded U.S. GAAP policy benefits are adequate. The Company establishes a premium deficiency reserve, or an increase to future policy benefits to the extent that deferred acquisition costs are insufficient to cover the premium deficiency reserve, if the actuarial indication of life policy benefits is greater than current recorded aggregate amounts for policy benefits, settlement costs, and deferred acquisition costs. For standard annuities, the main risk is a faster increase in future life span than expected in the medium to long term. Non-standard annuities are annuities sold to people with aggravated health conditions and are usually medically underwritten on an individual basis and the main risk is the inadequate assessment of the future life span of the insured.



Mortality

The reserves for the short-term mortality business are established in accordance with the provisions for short duration insurance contracts under U.S. GAAP. They consist of case reserves and IBNR, calculated at the treaty level based upon cedant information. The Company's reserving methodology includes a quarterly review of actual experience against expected experience and the use of the Expected Loss Ratio method described in Losses and Loss Expenses above. Given the very short-term loss development of this portion of the portfolio, this method is considered appropriate. The reserves for the long-term traditional mortality and TCI reinsurance portfolio are established in accordance with the provisions for long duration insurance contracts under U.S. GAAP and follow the reserving methodology discussed under the Longevity section above. In addition to the assumptions discussed above, persistency and critical illness assumptions are considered in the reserving process for mortality lines. 90



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The reserves for the GMDB reinsurance business are established in accordance with the provisions for universal life contracts under U.S. GAAP. Key actuarial assumptions for this business are mortality, lapses, interest rates, expected returns on cash and bonds and stock market performance. For the last parameter, a stochastic option pricing approach is used and the benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The assumptions of investment performance and volatility are consistent with expected future experience of the respective underlying funds available for policyholder investment options. Recorded reserves for GMDB reflect Management's best estimate which relies upon the quarterly actuarial indications. Accident and Health The reserves for accident and health business are established in accordance with the provisions for short duration insurance contracts under U.S. GAAP. Reserves are initially calculated using the Expected Loss Ratio method. Subsequently, the Company's reserving methodology utilizes actual reported loss experience and the Bornhuetter-Ferguson method to calculate IBNR. The Company's gross and net policy benefits for life and annuity contracts by reserving line at December 31, 2013 were as follows (in millions of U.S. dollars): Total gross Total net Life and Life and Reserves for Health Health IBNR future policy reserves Ceded reserves Case reserves reserves benefits recorded reserves recorded Accident and Health $ 8 $ 91 $ - $ 99 $ (3 )$ 96 Longevity 1 131 424 556 (4 ) 552 Mortality 208 549 562 1,319 - 1,319 Total policy benefits for life and annuity contracts $ 217 $ 771 $ 986 $ 1,974$ (7 )$ 1,967 Total gross policy benefits for life and annuity contracts include provisions for adverse deviation of $127 million and $104 million at December 31, 2013 and 2012, respectively. The increase in the provision for adverse deviation is primarily driven by a new longevity swap written in 2013.



As an example of the sensitivity of the Company's policy benefits for life and annuity contracts to reserving parameter assumptions by reserving line, the effect of different assumption selections based on the amounts recorded at December 31, 2013 was as follows:

Impact on total Life reserves (in millions of Reserving lines Factors Change U.S. dollars) Longevity Standard and non-standard Mortality improvements annuities per annum 1 % 249 Mortality Long-term and TCI Mortality 10 % 145 GMDB Stock market performance 10% / -10 % (3)/3 It is not appropriate to sum the total impact for a specific reserving line or the total impact for a specific factor because the reinsurance portfolios are not perfectly correlated.



Premiums and Acquisition Costs

The Company provides proportional and non-proportional reinsurance coverage to cedants (insurance companies). In most cases, cedants seek protection for business that they have not yet written at the time they enter into reinsurance agreements and thus have to estimate the volume of premiums they will cede to the 91



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Company. Reporting delays are inherent in the reinsurance industry and vary in length by reinsurance market (country of cedant) and type of treaty. As delays can vary from a few weeks to a year or sometimes longer, the Company produces accounting estimates to report premiums and acquisition costs until it receives the cedants' actual premium reported data. Approximately 48%, 43% and 43% of the Company's reported net premiums written for the years ended December 31, 2013, 2012 and 2011, respectively, were based upon estimates. Under proportional treaties, which represented 76% of the Company's total gross premiums written for the year ended December 31, 2013, the Company shares proportionally in both the premiums and losses of the cedant and pays the cedant a commission to cover the cedant's acquisition costs. Under this type of treaty, the Company's ultimate premiums written and earned and acquisition costs are not known at the inception of the treaty. As such, reported premiums written and earned and acquisition costs on proportional treaties are generally based upon reports received from cedants and brokers, supplemented by the Company's own estimates of premiums written and acquisition costs for which ceding company reports have not been received. Premium and acquisition cost estimates are determined at the individual treaty level. The determination of premium estimates requires a review of the Company's experience with cedants, familiarity with each market, an understanding of the characteristics of each line of business and Management's assessment of the impact of various other factors on the volume of business written and ceded to the Company. Premium and acquisition cost estimates are updated as new information is received from the cedants and differences between such estimates and actual amounts are recorded in the period in which estimates are changed or the actual amounts are determined. Under non-proportional treaties, which represented 24% of the Company's total gross premiums written for the year ended December 31, 2013, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio and receives a fixed or minimum premium, which is subject to upward adjustment depending on the premium volume written by the cedant. In addition, many of the non-proportional treaties include reinstatement premium provisions. Reinstatement premiums are recognized as written and earned at the time a loss event occurs, where coverage limits for the remaining life of the contract are reinstated under pre-defined contract terms. The accrual of reinstatement premiums is based on Management's estimate of losses and loss expenses associated with the loss event. The magnitude and impact of changes in premium estimates differs for proportional and non-proportional treaties. Although proportional treaties may be subject to larger changes in premium estimates compared to non-proportional treaties, as the Company generally receives cedant statements in arrears and must estimate all premiums for periods ranging from one month to more than one year (depending on the frequency of cedant statements), the pre-tax impact is mitigated by changes in the cedant's related reported acquisition costs and losses. The impact of the change in estimate on premiums earned and pre-tax results varies depending on when the change becomes known during the risk period and the underlying profitability of the treaty. Non-proportional treaties generally include a fixed minimum premium and an adjustment premium. While the fixed minimum premiums require no estimation, adjustment premiums are estimated and could be subject to changes in estimates. The amounts recorded within net premiums written and earned that related to changes in prior year premium estimates reported by cedants for each Non-life sub-segment for the year ended December 31, 2013 were as follows (in millions of U.S. dollars): Non-life sub-segment Net premiums written Net premiums earned North America $ 28 $ 26 Global (Non-U.S.) P&C 29 26 Global Specialty 77 63 Catastrophe (1 ) (1 ) Total $ 133 $ 114



These increases in net premiums written and earned, after the corresponding adjustments to acquisition costs and losses and loss expenses, did not have a material impact on the Company's consolidated pre-tax net income.

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As an example of the sensitivity of the Company's Non-life net premiums written and acquisition costs to changes in estimates, the effect of different assumption selections on pre-tax net income based on amounts recorded for the year ended December 31, 2013 was as follows (in millions of U.S. dollars): Impact on pre-tax Change net income Net premiums written-Non-life proportional treaties (1) +/-5 % $ +/-17 Net premiums written-Non-life non-proportional treaties (2) +/-5 % +/-24 Acquisition costs-all Non-life treaties (3) +/-1 % -/+5



(1) The estimate assumes that the changes in net premiums written become known at

the mid-point of the risk period and is made by applying the reported

technical ratio for the year ended December 31, 2013.

(2) The estimate assumes that the changes in net premiums written become known at

the mid-point of the risk period and also assume there is no change in losses

and loss expenses and is made by applying the reported acquisition ratio for

the year ended December 31, 2013.

(3) The estimate relates to all of the Company's Non-life treaties (both

proportional and non-proportional) and assumes that the changes become known

at the mid-point of the risk period and also assumes there is no change in premium estimates. Acquisition costs, comprising only incremental brokerage fees, commissions and excise taxes, which vary directly with, and are related to, the acquisition of reinsurance contracts, are capitalized and charged to expense as the related premium is earned. All other acquisition-related costs, including all indirect costs, are expensed as incurred. The recovery of deferred policy acquisition costs is dependent upon the future profitability of the related business. Deferred policy acquisition costs recoverability testing is performed periodically together with the reserve adequacy test, based on the latest best estimate assumptions by line of business.



Income Taxes

Under U.S. GAAP, a deferred tax asset or liability is to be recognized for the estimated future tax effects attributable to temporary differences and carryforwards. U.S. GAAP also establishes procedures to assess whether a valuation allowance should be established for deferred tax assets. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Management must use its judgment in considering the relative impact of positive and negative evidence. The Company has also established tax liabilities relating to uncertain tax positions as defined under U.S. GAAP of $21 million at December 31, 2013 (see Notes 2(l) and 15 to Consolidated Financial Statements in Item 8 of Part II of this report). The Company has estimated the future tax effects attributed to temporary differences and has a deferred tax asset at December 31, 2013 of $156 million, after a valuation allowance of $46 million. The most significant component of the deferred tax asset (after valuation allowance) relates to loss reserve discounting for tax purposes. The Company has projected future taxable income in the tax jurisdictions in which the deferred tax assets arise. These projections are based on Management's projections of premium and investment income, capital gains and losses, and technical and expense ratios. Based on these projections and an analysis of the ability to utilize loss and foreign tax credits carryforwards at the taxable entity level, Management evaluates the need for a valuation allowance. The valuation allowance of $46 million, recorded at December 31, 2013, primarily related to a foreign tax credit carryforward in Ireland of $25 million and a tax loss carryforward in Singapore of $21 million. In accordance with U.S. GAAP, the Company has assumed that the future reversal of deferred tax liabilities will result in an increase in taxes payable in future years. Underlying this assumption is an expectation that the Company will continue to be subject to taxation in the various tax jurisdictions and that the Company will continue to generate taxable revenues in excess of deductions. 93



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As an example of the sensitivity of the Company's unrecognized tax benefit related to uncertain tax positions, deferred tax asset and net deferred tax liability, the impact of different assumption selections on the Company's net income and the corresponding impact on net assets based on amounts recorded at December 31, 2013 was as follows (in millions of U.S. dollars): Impact on net income 2013 Change and net assets Unrecognized tax benefit related to uncertain tax positions $ (21 ) +10 % $ (2 ) Deferred tax asset 156 -10 % (16 ) Net deferred tax liability (223 ) +10 % (22 )



Valuation of Investments and Funds Held - Directly Managed, including certain Derivative Financial Instruments

The Company defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures the fair value of its financial instruments according to a fair value hierarchy that prioritizes the information used to measure fair value into three broad levels. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement. The Company must determine the appropriate level in the hierarchy for each financial instrument that it measures at fair value. In determining fair value, the Company uses various valuation approaches, including market, income and cost approaches. See Note 3 to Consolidated Financial Statements in Item 8 of Part II of this report for more detail on the valuation techniques, methods and assumptions that were used by the Company to estimate the fair value of its fixed maturities and short-term investments, equities, other invested assets and its fixed maturities and other invested assets underlying the funds held - directly managed account. See Note 6 to Consolidated Financial Statements in Item 8 of Part II of this report for more discussion of the Company's use of derivative financial instruments. The Company records all of its fixed maturities, short-term investments and equities, certain other invested assets, including derivative financial instruments, and its fixed maturities and certain other invested assets underlying the funds held - directly managed account at fair value in its Consolidated Balance Sheets. The changes in the fair value of all of the Company's investments and derivatives, carried at fair value, are recorded in net realized and unrealized investment gains and losses, except for certain foreign exchange related derivatives that are recorded in net foreign exchange gains and losses, in the Consolidated Statements of Operations and are included in the determination of net income or loss in the period in which they are recorded. 94



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Under the fair value hierarchy, Management uses certain assumptions and judgments to derive the fair value of its investments, particularly for those assets with significant unobservable inputs, commonly referred to as Level 3 assets. At December 31, 2013, the Company's financial instruments that were measured at fair value and categorized as Level 3 were as follows (in millions of U.S. dollars): December 31, 2013 Fixed maturities $ 555 Equities 38 Other invested assets (including certain derivatives) 104 Funds held - directly managed account 15 Total $ 712 For the Company's fixed maturities, equities, other invested assets and investments underlying the funds held - directly managed account categorized as Level 3, a 10% decline in the fair value of these investments at December 31, 2013 would result in a $71 million pre-tax charge to net income or loss and a corresponding reduction in total assets. In addition to other invested assets included in the table above for Level 3 and the combined fair value of Level 1 and Level 2 derivative assets of $31 million, the Company's other invested assets also include various investments which are accounted for using the cost method of accounting or equity method of accounting, totaling $186 million at December 31, 2013. The Company does not measure its investments that are accounted for using any of these methods at fair value. For investments that are accounted for using the cost method of accounting or equity method of accounting, a 10% decline in the carrying value of these investments at December 31, 2013 would result in a $19 million pre-tax charge to net income or loss and a corresponding reduction in investments and total assets. The Company utilizes derivatives for a variety of purposes. The Company's derivatives are carried at fair value, which is based on quoted market prices or internal valuation models where quoted market prices are not available. Most of the Company's derivatives are fair valued using significant other observable inputs (fair value of $10 million net unrealized loss at December 31, 2013), referred to as Level 2 assets, and included foreign exchange forward contracts, interest rate swaps, foreign currency options, credit default swaps and to-be-announced mortgage-backed securities (TBAs). The Company's derivatives that are fair valued using quoted prices in active markets, referred to as Level 1 assets, had fair value of $41 million at December 31, 2013, and included treasury and equity futures. In addition, the Company has certain total return swaps and insurance-linked securities that are fair valued using significant other unobservable inputs, and are included in the Level 3 other invested assets. The total return swaps and insurance-linked securities that are classified as Level 3 have an insignificant combined fair value at December 31, 2013, based on a combined notional exposure of $200 million. In aggregate, the Company is not significantly exposed to changes in the valuation of its total return and interest rate swap portfolio due to changes in the general level of interest rates. At December 31, 2013, the Company estimated that a 100 basis point increase or decrease in all risk spread assumptions used in the Company's internal valuation models would result in a $2 million decrease or increase, respectively, in the fair value of its total return and interest rate swap portfolio categorized as Level 3. The Company is exposed to changes in the expected amount of future cash flows of the reference assets in its total return swap portfolio. The Company's total return swap portfolio primarily references certain bonds issued by U.S. municipalities. At December 31, 2013, the notional value of the total return swap portfolio categorized as Level 3 was $32 million and the fair value of the assets underlying the total return swap portfolio categorized as Level 3 was $31 million. The Company estimated that each 1% increase or decrease in the amount of all expected future cash flows related to the reference assets would result in a $2 million increase or decrease, respectively, in the fair value of its total return swap portfolio at December 31, 2013. 95



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At December 31, 2013, the Company's insurance-linked securities that are classified as Level 3 include longevity swaps and weather derivatives, with an insignificant combined fair value. At December 31, 2013, the notional exposure of the longevity swaps and weather derivatives classified as Level 3 was $133 million and $36 million, respectively. At December 31, 2013, the Company estimated that a 10% improvement in the mortality assumption used in the Company's internal valuation models for its longevity swaps would result in a $4 million decrease in the fair value of its longevity swap portfolio. The weather derivatives categorized as Level 3 are exposed to wind events, and any change in the assumptions used in the Company's internal models would have an insignificant impact on the fair value of weather derivatives at December 31, 2013. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired of PartnerRe SA, Winterthur Re, Paris Re and PartnerRe Health. The Company assesses the appropriateness of its valuation of goodwill on at least an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. If, as a result of the assessment, the Company determines that the value of its goodwill is impaired, goodwill will be written down in the period in which the determination is made. Neither the Company's initial valuation nor its subsequent valuations has indicated any impairment of the Company's goodwill asset of $456 million at December 31, 2013. In making an assessment of the value of its goodwill, the Company uses both market based and non-market based valuations. The fair value of the reporting units is determined based on the earnings multiple, price to tangible book value multiple, present value of estimated cash flows and present value of future profits methods. Significant changes in the data underlying these assumptions could result in an assessment of impairment of the Company's goodwill asset. In addition, if the current economic environment and/or the Company's financial performance were to deteriorate significantly, this could lead to an impairment of goodwill, the write-off of which would be recorded against net income in the period such deterioration occurred.



Intangible Assets

Intangible assets represent the fair value adjustments related to unpaid losses and loss expenses and the fair values of renewal rights, customer relationships and U.S. licenses arising from the acquisitions of Paris Re and PartnerRe Health. Definite-lived intangible assets are amortized over their useful lives, generally ranging from eleven to thirteen years. The Company recognizes the amortization of all intangible assets in the Consolidated Statement of Operations. Indefinite-lived intangible assets are not subject to amortization. The carrying values of intangible assets are reviewed for indicators of impairment on at least an annual basis. Impairment is recognized if the carrying values of the intangible assets are not recoverable from their undiscounted cash flows and are measured as the difference between the carrying value and the fair value. Based upon the Company's assessment, there was no impairment of its intangible assets of $187 million at December 31, 2013.



Results of Operations

The following discussion of Results of Operations contains forward-looking statements based upon assumptions and expectations concerning the potential effect of future events that are subject to uncertainties. See Item 1A of Part I of this report for a complete list of the Company's risk factors. Any of these risk factors could cause actual results to differ materially from those reflected in such forward-looking statements. The Company's reporting currency is the U.S. dollar. The Company's significant subsidiaries and branches have one of the following functional currencies: U.S. dollar, euro or Canadian dollar. As a significant portion of the Company's operations is transacted in foreign currencies, fluctuations in foreign exchange rates may affect year over year comparisons. To the extent that fluctuations in foreign exchange rates affect comparisons, their impact has been quantified, when possible, and discussed in each of the relevant sections. See Note 2(m) to Consolidated Financial Statements in Item 8 of Part II of this report for a discussion of translation of foreign currencies. 96



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The foreign exchange fluctuations for the principal currencies in which the Company transacts business were as follows:

the U.S. dollar average exchange rate was stronger against most

currencies, except the euro and Swiss franc, in 2013 compared to 2012 and

was stronger against most currencies, except the Japanese yen, in 2012 compared to 2011; and



the U.S. dollar ending exchange rate weakened against most currencies,

except the Japanese yen and Canadian dollar, at December 31, 2013 compared

to December 31, 2012.

Review of Net Income (Loss)

Management analyzes the Company's net income or loss in three parts: underwriting result, investment result and other components of net income or loss. Underwriting result consists of net premiums earned and other income or loss less losses and loss expenses and life policy benefits, acquisition costs and other operating expenses. Investment result consists of net investment income, net realized and unrealized investment gains or losses and interest in earnings or losses of equity investments. Net investment income includes interest and dividends, net of investment expenses, generated by the Company's investment activities, as well as interest income generated on funds held assets. Net realized and unrealized investment gains or losses include sales of the Company's fixed income, equity and other invested assets and investments underlying the funds held - directly managed account and changes in net unrealized gains or losses. Interest in earnings or losses of equity investments includes the Company's strategic investments. Other components of net income or loss include technical result and other income or loss, other operating expenses, interest expense, amortization of intangible assets, net foreign exchange gains or losses and income tax expense or benefit.



The components of net income (loss) for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Underwriting result: Non-life $ 626 37 % $ 456 NM % $ (973 ) Life and Health 12 NM (16 ) (39 ) (27 ) Investment result: Net investment income 484 (15 ) 571 (9 ) 629 Net realized and unrealized investment (losses) gains (161 ) NM 494 640 67 Interest in earnings (losses) of equity investments (1) 14 37 10 NM (6 ) Corporate and Other: Technical result (2) 8 98 4 (23 ) 6 Other income (2) 3 (24 ) 3 15 3 Other operating expenses (170 ) 67 (102 ) 3 (99 ) Interest expense (49 ) - (49 ) - (49 ) Amortization of intangible assets (3) (27 ) (15 ) (32 ) (13 ) (36 ) Net foreign exchange (losses) gains (18 ) NM - NM 34 Income tax expense (49 ) (76 ) (204 ) 196 (69 ) Net income (loss) $ 673 (41 ) $ 1,135 NM $ (520 ) NM: not meaningful



(1) Interest in earnings or losses of equity investments represents the Company's

aggregate share of earnings or losses related to several private placement

investments and limited partnerships within the Corporate and Other segment.

97

-------------------------------------------------------------------------------- Table of Contents (2) Technical result and other income primarily relate to income on



insurance-linked securities and principal finance transactions within the

Corporate and Other segment.

(3) Amortization of intangible assets relates to intangible assets acquired in

the acquisition of Paris Re in 2009 and PartnerRe Health in 2012. The

acquisition of PartnerRe Health was effective December 31, 2012 and,

accordingly, no amortization expense related to the intangible assets

acquired has been recorded during the years ended December 31, 2012 and 2011.

Underwriting result is a measurement that the Company uses to manage and evaluate its Non-life and Life and Health segments, as it is a primary measure of underlying profitability for the Company's core reinsurance operations, separate from the investment results. The Company believes that in order to enhance the understanding of its profitability, it is useful for investors to evaluate the components of net income or loss separately and in the aggregate. Underwriting result should not be considered a substitute for net income or loss and does not reflect the overall profitability of the business, which is also impacted by investment results and other items. The following table provides the components of the underwriting result and combined ratio for the Non-life segment for the years ended December 31, 2013, 2012 and 2011 and the components are discussed further below (in millions of U.S. dollars): 2013 2012 2011 Current accident year technical result and ratio Adjusted for large catastrophic losses and large losses $ 303 92.8 % $ 396 89.1 % $ 509 86.5 % Large catastrophic losses and large losses (1) (142 ) 3.4 (316 ) 8.7 (1,733 ) 45.3 Prior accident years technical result and ratio Net favorable prior year loss development 721 (17.0 ) 628



(17.0 ) 530 (13.8 )

Technical result and ratio, as reported $ 882 79.2 % $ 708 80.8 % $ (694 ) 118.0 % Other income 3 - 5 - 4 - Other operating expenses (259 ) 6.1 (257 ) 7.0 (283 ) 7.4 Underwriting result and combined ratio, as reported $ 626 85.3 % $ 456 87.8 % $ (973 ) 125.4 %



(1) Large catastrophic losses and large losses are shown net of any related

reinsurance, reinstatement premiums and profit commissions.

2013 compared to 2012

The underwriting result for the Non-life segment increased by $170 million (corresponding to a decrease of 2.5 points in the combined ratio), from $456 million (87.8 points on the combined ratio) in 2012 to $626 million (85.3 points on the combined ratio) in 2013. The increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in 2013 compared to 2012 was primarily attributable to:



Large catastrophic losses and large losses-a decrease of $174 million

(decrease of 5.3 points in the technical ratio) compared to no significant

catastrophic losses from $316 million (8.7 points on the technical ratio)

in 2012 related to Superstorm Sandy and the U.S. drought that impacted the

agriculture line of the North America sub-segment to $142 million (3.4

points on the technical ratio) in 2013 related to the German Hailstorm,

Alberta Floods and European Floods.



Net favorable prior year loss development-an increase of $93 million from

$628 million (17.0 points on the technical ratio) in 2012 to $721 million

(17.0 points on the technical ratio) in 2013. The increase in net

favorable prior year loss development was primarily driven by increases in

the Global (Non-U.S.) P&C and Catastrophe sub-segments, which were

partially offset by a decrease in the Global Specialty sub-segment. While

net favorable prior year loss development increased in 2013 compared to

2012, this did not decrease the technical ratio as a result of higher net

premiums earned in 2013. The components of the net favorable prior year loss development are described in more detail in the discussion of individual sub-segments in Results by Segment below. 98



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These factors driving the increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in 2013 compared to 2012 were partially offset by:

The current accident year technical result, adjusted for large

catastrophic losses and large losses-a decrease in the technical result

(and a corresponding increase in the technical ratio) primarily driven by

higher losses reported by a large cedant in the agriculture line of

business of the Company's North America sub-segment and a higher level of

mid-sized loss activity in the Global Specialty and Catastrophe sub-segments. These decreases were partially offset by higher upward premium adjustments in the Global (Non-U.S.) P&C sub-segment and a



modestly lower level of mid-sized loss activity in the Global (Non-U.S.)

P&C and North America sub-segments.

The underwriting result for the Life and Health segment, which does not include allocated investment income, improved by $28 million, from a loss of $16 million in 2012 to a gain of $12 million in 2013. The improvement in the Life and Health underwriting result was primarily due to higher net favorable prior year loss development, driven by the mortality line of business. See Results by Segment below. Net investment income decreased by $87 million, from $571 million in 2012 to $484 million in 2013. The decrease in net investment income was primarily attributable to a decrease in net investment income from fixed maturities due to lower reinvestment rates. See Corporate and Other - Net Investment Income below for more details. Net realized and unrealized investment losses increased by $655 million, from gains of $494 million in 2012 to losses of $161 million in 2013. The net realized and unrealized investment losses of $161 million in 2013 were primarily due to increases in risk-free interest rates and were partially offset by improvements in worldwide equity markets and narrower credit spreads. See Corporate and Other - Net Realized and Unrealized Investment Gains (Losses) below for more details.



Other operating expenses included in Corporate and Other increased by $68 million, from $102 million in 2012 to $170 million in 2013. The increase was primarily due to restructuring charges described in Overview above.

Interest expense in 2013 was comparable to 2012.

Net foreign exchange losses increased by $18 million, from breakeven in 2012 to losses of $18 million in 2013. The net foreign exchange losses in 2013 resulted primarily from currency movements on certain unhedged equity securities. The Company hedges a significant portion of its currency risk exposure as discussed in Quantitative and Qualitative Disclosures about Market Risk in Item 7A of Part II of this report. Income tax expense decreased by $155 million, from $204 million in 2012 to $49 million in 2013, reflecting a decrease in pre-tax net income and a higher distribution of pre-tax net income recorded in non-taxable jurisdictions in 2013 compared to 2012. See Corporate and Other - Income Taxes below for more details.



2012 compared to 2011

The underwriting result for the Non-life segment increased by $1,429 million (corresponding to a decrease of 37.6 points in the combined ratio), from a loss of $973 million (125.4 points on the combined ratio) in 2011 to an income of $456 million (87.8 points on the combined ratio) in 2012. The increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in 2012 compared to 2011 was primarily attributable to:



Large catastrophic losses and large losses-a decrease of $1,417 million

(decrease of 36.6 points in the technical ratio) from $1,733 million (45.3

points on the technical ratio) related to the 2011 99



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catastrophic events to $316 million (8.7 points on the technical ratio)

related to Superstorm Sandy and the U.S. drought, which impacted the

agriculture line of business in the North America sub-segment, in 2012. Net favorable prior year loss development-an increase of $98 million



(decrease of 3.2 points in the technical ratio) from $530 million (13.8

points on the technical ratio) in 2011 to $628 million (17.0 points on the

combined ratio) in 2012. The increase was primarily driven by the Global

Specialty and North America sub-segments. The components of the net

favorable prior year loss development are described in more detail in the

discussion of individual sub-segments in Results by Segment below. Other operating expenses-a decrease of $26 million (a decrease of 0.4



points in the combined ratio) from $283 million (7.4 points on the

combined ratio) in 2011 to $257 million (7.0 points on the combined ratio)

in 2012, primarily resulting from a favorable impact of foreign exchange

fluctuations and lower information technology costs.

These factors driving the increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in 2012 compared to 2011 were partially offset by:

The current accident year technical result, adjusted for large catastrophic losses and large losses-a decrease of $113 million (an



increase of 2.6 points in the technical ratio) from $509 million (86.5

points on the technical ratio) in 2011 to $396 million (89.1 points on the

technical ratio) in 2012. The decrease was driven by a lower level of net

premiums earned in the Catastrophe sub-segment, which absent catastrophe

losses, directly reduces the underwriting result, and a lower level of

losses recovered under retrocessional programs. These decreases were

partially offset by a lower level of mid-sized loss activity in the Global

Specialty and North America sub-segments.

The underwriting result for the Life segment, which does not include allocated investment income, improved by $11 million, from a loss of $27 million in 2011 to a loss of $16 million in 2012, primarily due to higher net favorable prior year loss development, which was driven by the mortality line of business. See Results by Segment below. Net investment income decreased by $58 million, from $629 million in 2011 to $571 million in 2012. The decrease in net investment income is primarily attributable to a decrease in net investment income from fixed maturities due to lower reinvestment rates. See Corporate and Other - Net Investment Income below for more details. Net realized and unrealized investment gains increased by $427 million, from $67 million in 2011 to $494 million in 2012. The net realized and unrealized investment gains of $494 million in 2012 were primarily due to narrowing credit spreads, improvements in worldwide equity markets and decreases in U.S. and European risk-free interest rates. See Corporate and Other - Net Realized and Unrealized Investment Gains below for more details.



Other operating expenses included in Corporate and Other increased by $3 million, from $99 million in 2011 to $102 million in 2012. The increase was primarily due to higher consulting costs in 2012.

Interest expense in 2012 was comparable to 2011.

Net foreign exchange gains decreased by $34 million, from $34 million in 2011 to $nil in 2012. The net foreign exchange result in 2012 was primarily due to losses related to the timing of hedging activities, which were offset by gains arising from the difference in the forward points embedded in the Company's hedges. The Company hedges a significant portion of its currency risk exposure as discussed in Quantitative and Qualitative Disclosures about Market Risk in Item 7A of Part II of this report. 100



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Income tax expense increased by $135 million, from $69 million in 2011 to $204 million in 2012. The increase in the income tax expense was primarily due to the Company's taxable jurisdictions generating a higher pre-tax income in 2012 compared to 2011. See Corporate and Other-Income Taxes below for more details.



Results by Segment

The Company monitors the performance of its operations in three segments, Non-life, Life and Health and Corporate and Other. The Non-life segment is further divided into four sub-segments, North America, Global (Non-U.S.) Property and Casualty (Global (Non-U.S.) P&C), Global Specialty and Catastrophe. Segments and sub-segments represent markets that are reasonably homogeneous in terms of geography, client types, buying patterns, underlying risk patterns and approach to risk management. See the description of the Company's segments and sub-segments as well as a discussion of how the Company measures its segment results in Note 21 to Consolidated Financial Statements included in Item 8 of Part II of this report. Effective January 1, 2013, the Life segment is referred to as Life and Health to reflect the inclusion of PartnerRe Health's results and the Global (Non-U.S.) Specialty sub-segment is referred to as Global Specialty. Non-life Segment North America The North America sub-segment is comprised of lines of business that are considered to be either short, medium or long-tail. The short-tail lines consist primarily of agriculture, property and motor business. Casualty is considered to be long-tail, while credit/surety and multiline are considered to have a medium tail. The casualty line typically tends to have a higher loss ratio and a lower technical result due to the long-tail nature of the risks involved. Casualty treaties typically provide for investment income on premiums invested over a longer period as losses are typically paid later than for other lines. Investment income, however, is not considered in the calculation of technical result.



The following table provides the components of the technical result and the corresponding ratios for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Gross premiums written $ 1,601 31 % $ 1,221 11 % $ 1,104 Net premiums written 1,587 30 1,219 11 1,104 Net premiums earned $ 1,533 30 $ 1,176 4 $ 1,135 Losses and loss expenses (975 ) 19 (816 ) 10 (741 ) Acquisition costs (351 ) 21 (291 ) 5 (276 ) Technical result (1) $ 207 200 $ 69 (41 ) $ 118 Loss ratio (2) 63.6 % 69.4 % 65.3 % Acquisition ratio (3) 22.9 24.7 24.3 Technical ratio (4) 86.5 % 94.1 % 89.6 %



(1) Technical result is defined as net premiums earned less losses and loss

expenses and acquisition costs.

(2) Loss ratio is obtained by dividing losses and loss expenses by net premiums

earned.

(3) Acquisition ratio is obtained by dividing acquisition costs by net premiums

earned.

(4) Technical ratio is defined as the sum of the loss ratio and the acquisition

ratio. 101



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Premiums

The North America sub-segment represented 30%, 27% and 24% of total net premiums written in 2013, 2012 and 2011, respectively. The following table summarizes the net premiums written and net premiums earned by line of business for this sub-segment for years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned Agriculture $ 478 30 % $ 478 31 % $ 231 19 % $ 231 20 % $ 222 20 % $ 223 20 % Casualty 588 37 564 37 520 43 484 41 440 40 434 38 Credit/Surety 54 3 48 3 54 4 54 5 53 5 60 5 Motor 58 4 49 3 51 4 65 6 95 8 100 9 Multiline 97 6 96 6 89 7 87 7 79 7 77 7 Property 241 15 235 16 238 20 227 19 198 18 218 19 Other 71 5 63 4 36 3 28 2 17 2 23 2 Total $ 1,587 100 % $ 1,533 100 % $ 1,219 100 % $ 1,176 100 % $ 1,104 100 % $ 1,135 100 %



2013 compared to 2012

Gross premiums written increased by 31% and net premiums written and earned increased by 30% in 2013 compared to 2012. The increases in gross and net premiums written and net premiums earned were primarily driven by the increase in the agriculture line of business, and, to a lesser extent, the casualty line of business, which were the result of new business written. Notwithstanding the diverse conditions prevailing in various markets within this sub-segment, the Company was able to write business that met its portfolio objectives.



2012 compared to 2011

Gross and net premiums written increased by 11% and net premiums earned increased by 4% in 2012 compared to 2011. The increases in gross and net premiums written were driven by most lines of business, except the motor line, and were most pronounced in the casualty and property lines of business. The increase in the casualty line of business was primarily driven by new business written and higher upward prior year premium adjustments. The increase in the property line of business was due to new business written. These increases in gross and net premiums written were partially offset by reductions in the motor line of business as a result of non-renewals of certain treaties. The increase in net premiums earned was lower than the increase in gross and net premiums written due to the earning of the reduced level of premiums written in 2011, primarily in the property line as a result of cancellations and lower renewals, and due to the impact of the new casualty and property business in 2012 being written on a proportional basis, which is yet to be fully reflected in net premiums earned.



Technical result and technical ratio

The following table provides the components of the technical result and ratio for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011



Current accident year technical result and ratio Adjusted for large catastrophic losses and large losses $ (2 ) 100.1 % $ 8 99.3 % $ (21 ) 101.9 % Large catastrophic losses and large losses (1)

(14 )



0.9 (157 ) 13.4 (50 ) 4.4 Prior accident years technical result and ratio Net favorable prior year loss development

223



(14.5 ) 218 (18.6 ) 189 (16.7 )

Technical result and ratio, as reported $ 207 86.5 % $ 69 94.1 % $ 118 89.6 % 102



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(1) Large catastrophic losses and large losses are shown net of any related

reinsurance, reinstatement premiums and profit commissions.

2013 compared to 2012

The increase of $138 million in the technical result (and the corresponding decrease of 7.6 points in the technical ratio) in 2013 compared to 2012 was primarily attributable to:

Large catastrophic losses and large losses-a decrease of $143 million

(decrease of 12.5 points in the technical ratio) from $157 million (13.4

points on the technical ratio) related to the U.S. drought and Superstorm

Sandy in 2012 to $14 million (0.9 points on the technical ratio) related

to the Alberta Floods in 2013. Net favorable prior year loss development-an increase of $5 million



(increase of 4.1 points in the technical ratio) from $218 million (18.6

points on the technical ratio) in 2012 to $223 million (14.5 points on the

technical ratio) in 2013. The net favorable loss development for prior accident years in 2013 was driven by most lines of business, with the casualty line being the most pronounced. The net favorable loss



development for prior accident years in 2012 is described below. While net

favorable prior year loss development increased in 2013 compared to the 2012, this had a reduced impact on the technical ratio as a result of higher net premiums earned in 2013 compared to 2012.



These factors driving the increase in the technical result in 2013 compared to 2012 were partially offset by:

The current accident year technical result, adjusted for large

catastrophic losses and large losses-a decrease in the technical result

(and corresponding increase in the technical ratio) primarily due to higher losses reported by a large cedant in the agriculture line of



business, partially offset by normal fluctuations in profitability between

periods. 2012 compared to 2011



The decrease of $49 million in the technical result (and the corresponding increase of 4.5 points in the technical ratio) in 2012 compared to 2011 was primarily attributable to:

Large catastrophic losses and large losses-an increase of $107 million

(increase of 9.0 points in the technical ratio) from $50 million (4.4

points on the technical ratio) related to the U.S. tornadoes in 2011 to

$157 million (13.4 points on the technical ratio) related to the U.S. drought and Superstorm Sandy in 2012.



This factor driving the decrease in the technical result in 2012 compared to 2011 was partially offset by:

Net favorable prior year loss development-an increase of $29 million

(decrease of 1.9 points in the technical ratio) from $189 million (16.7

points on the technical ratio) in 2011 to $218 million (18.6 points on the

technical ratio) in 2012. The net favorable loss development for prior

accident years in 2012 and 2011 was driven by most lines of business, with

the casualty line of business being the most pronounced. The current accident year technical result, adjusted for large

catastrophic losses and large losses-an increase in the technical result (and corresponding decrease in the technical ratio) due to a lower level of mid-sized loss activity, higher upward premium adjustments in 2012



compared to 2011 and normal fluctuations in profitability between periods.

2014 Outlook During the January 1, 2014 renewals, the Company observed increasingly competitive markets with cedants retaining more business and terms and conditions deteriorating due to an excess supply of reinsurance capital. Despite these factors, the expected premium volume from the Company's January 1, 2014 renewal increased 103



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compared to the prior year primarily as a result of new business. Management expects a continuation of the observed trends in competition and conditions during the remainder of 2014.

Global (Non-U.S.) P&C

The Global (Non-U.S.) P&C sub-segment is composed of short-tail business, in the form of property and proportional motor business, that represented approximately 85%, 83% and 84% of net premiums written in 2013, 2012 and 2011, respectively, and long-tail business, in the form of casualty and non-proportional motor business, that represented the balance of net premiums written.



The following table provides the components of the technical result and the corresponding ratios for this sub-segment for years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Gross premiums written $ 818 20 % $ 684 - % $ 682 Net premiums written 811 19 681 - 678 Net premiums earned $ 743 10 $ 678 (11 ) $ 759



Losses and loss expenses (373 ) (10 ) (415 )

(27 ) (567 ) Acquisition costs (196 ) 18 (167 ) (12 ) (191 ) Technical result $ 174 81 $ 96 NM $ 1 Loss ratio 50.2 % 61.3 % 74.7 % Acquisition ratio 26.4 24.6 25.1 Technical ratio 76.6 % 85.9 % 99.8 % NM: not meaningful Premiums The Global (Non-U.S.) P&C sub-segment represented 15% of total net premiums written in 2013, 2012 and 2011. The following table summarizes the net premiums written and net premiums earned by line of business for this sub-segment for years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Net premiums Net premiums Net premiums



Net premiums Net premiums Net premiums

written earned written earned written earned Casualty $ 74 9 % $ 75 10 % $ 75 11 % $ 74 11 % $ 70 10 % $ 82 11 % Motor 304 37 238 32 187 28 164 24 132 20 168 22 Property 433 54 430 58 419 61 440 65 476 70 509 67 Total $ 811 100 % $ 743 100 % $ 681 100 % $ 678 100 % $ 678 100 % $ 759 100 % 104



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Business reported in this sub-segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making year to year comparisons. The following table summarizes the effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in 2013 compared to 2012 and in 2012 compared to 2011: Gross premiums Net premiums Net premiums written written earned 2013 compared to 2012 Increase in original currency 20 % 19 % 9 % Foreign exchange effect - - 1 Increase as reported in U.S. dollars 20 % 19 % 10 % 2012 compared to 2011 Increase (decrease) in original currency 4 % 4 % (6 )% Foreign exchange effect (4 ) (4 ) (5 ) Increase (decrease) as reported in U.S. dollars - % - % (11 )%



2013 compared to 2012

Gross and net premiums written and net premiums earned increased by 20%, 19% and 9% on a constant foreign exchange basis, respectively, in 2013 compared to 2012. The increases in gross and net premiums written and net premiums earned resulted primarily from new motor business. The increase in net premiums earned was lower than the increases in gross and net premiums written as the new motor business in 2013 was written on a proportional basis and is yet to be fully reflected in net premiums earned. Notwithstanding the continued competitive conditions in most markets, the Company was able to write business that met its portfolio objectives.



2012 compared to 2011

Gross and net premiums written increased by 4% and net premiums earned decreased by 6% on a constant foreign exchange basis in 2012 compared to 2011. The increases in gross and net premiums written were primarily due to new business written in the motor line of business, partially offset by decreases in the property line of business. The decreases in the property line were driven by the effects of the Company's decisions in prior periods to reduce certain business to reposition its portfolio. Net premiums earned decreased in 2012 compared to 2011 due to the earning of the reduced level of premiums written in 2011 given a significant percentage of the business is written on a proportional basis with the impact of these reductions reflected in net premiums earned over time, and the new business written in 2012 is yet to be fully reflected in net premiums earned.



Technical result and technical ratio

The following table provides the components of the technical result and ratio for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Current accident year technical result and ratio Adjusted for large catastrophic losses $ 5 99.3 % $ (16 ) 102.5 % $ 34 95.4 % Large catastrophic losses (1) (11 ) 1.5 (2 ) 0.3 (149 ) 19.7 Prior accident years technical result and ratio Net favorable prior year loss development 180 (24.2 )



114 (16.9 ) 116 (15.3 )

Technical result and ratio, as reported $ 174 76.6 % $ 96 85.9 % $ 1 99.8 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions. 105



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2013 compared to 2012

The increase of $78 million in the technical result (and the corresponding decrease of 9.3 points in the technical ratio) in 2013 compared to 2012 was primarily attributable to:

Net favorable prior year loss development-an increase of $66 million

(decrease of 7.3 points in the technical ratio) from $114 million (16.9

points on the technical ratio) in 2012 to $180 million (24.2 points on the

technical ratio) in 2013. The net favorable loss development for prior accident years in 2013 was driven by all lines of business, with the property line being the most pronounced, and included favorable loss emergence related to certain catastrophic and large loss events. The net



favorable loss development for prior accident years in 2012 is described

below. The current accident year technical result, adjusted for large catastrophic losses-an increase in the technical result (and a



corresponding decrease in the technical ratio) due to higher upward

premium adjustments reported by cedants in 2013 compared to 2012, modestly

lower level of mid-sized loss activity and lower loss picks in certain

lines of business, partially offset by a higher acquisition cost ratio.

These factors driving the increase in the technical result in 2013 compared to 2012 were partially offset by:

Large catastrophic losses-an increase of $9 million (increase of 1.2

points in the technical ratio) from $2 million (0.3 points on the

technical ratio) related to Superstorm Sandy in 2012 to $11 million (1.5

points on the technical ratio) in 2013 related to the European Floods and

German Hailstorm. 2012 compared to 2011



The increase of $95 million in the technical result (and the corresponding decrease of 13.9 points in the technical ratio) in 2012 compared to 2011 was primarily attributable to:

Large catastrophic losses-a decrease of $147 million (decrease of 19.4

points in the technical ratio) from $149 million (19.7 points on the technical ratio) related to the Thailand Floods, the February and June



2011 New Zealand Earthquakes, Japan Earthquake and Australian Floods in

2011 to $2 million (0.3 points on the technical ratio) related to

Superstorm Sandy in 2012.

This factor driving the increase in the technical result in 2012 compared to 2011 was partially offset by:

The current accident year technical result, adjusted for large

catastrophic losses-a decrease in the technical result due to a lower level of net premiums earned in 2012 compared to 2011, including a decrease in the catastrophe exposed business, which in the absence of



catastrophic losses, directly reduces the technical result (and increases

the technical ratio). In addition, the decrease in the technical result

was due to a higher level of mid-sized loss activity and lower pricing,

partially offset by normal fluctuations in profitability between periods. Net favorable prior year loss development-a decrease of $2 million



(decrease of 1.6 points in the technical ratio due to the lower level of

net premiums earned in 2012) from $116 million (15.3 points on the

technical ratio) in 2011 to $114 million (16.9 points on the technical

ratio) in 2012. The net favorable loss development for prior accident

years in 2012 was driven by all lines of business, with the property line

being the most pronounced. The net favorable loss development for prior

accident years in 2011 was driven by all lines of business, with the motor

line being the most pronounced.

2014 Outlook

During the January 1, 2014 renewals, the Company generally observed challenging market conditions primarily driven by increased competition, increased retentions by cedants and reduced pricing. As a result of these factors, the overall expected premium volume from the Company's January 1, 2014 renewal, at constant 106



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foreign exchange rates, decreased modestly compared to the prior year renewal and was partially offset by new business. Management expects a continuation of the observed trends in competition, retentions and pricing during the remainder of 2014. Global Specialty The Global Specialty sub-segment is primarily comprised of lines of business that are considered to be either short, medium or long-tail. The short-tail lines consist of agriculture, energy and specialty property. Aviation/space, credit/surety, engineering and marine are considered to have a medium tail, while specialty casualty is considered to be long-tail.



The following table provides the components of the technical result and the corresponding ratios for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Gross premiums written $ 1,676 11 % $ 1,505 4 % $ 1,446 Net premiums written 1,579 12 1,415 5 1,344 Net premiums earned $ 1,506 10 $ 1,373 - $ 1,376 Losses and loss expenses (920 ) 12 (821 ) (14 ) (950 ) Acquisition costs (362 ) 13 (321 ) (2 ) (328 ) Technical result $ 224 (3 ) $ 231 135 $ 98 Loss ratio 61.1 % 59.8 % 69.1 % Acquisition ratio 24.0 23.4 23.8 Technical ratio 85.1 % 83.2 % 92.9 % Premiums



The Global Specialty sub-segment represented 29%, 31% and 30% of total net premiums written in 2013, 2012 and 2011, respectively. The following table summarizes the net premiums written and net premiums earned by line of business for this sub-segment for years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars):

2013 2012 2011 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned Agriculture $ 138 9 % $ 130 9 % $ 80 6 % $ 81 6 % $ 70 5 % $ 74 6 % Aviation/Space 204 13 198 13 217 15 215 15 211 16 217 16 Credit/Surety 292 19 285 19 273 19 261 19 272 20 279 20 Energy 86 5 95 6 95 7 100 7 111 8 112 8 Engineering 221 14 212 14 171 12 176 13 183 14 198 14 Marine 306 19 299 20 313 22 298 22 271 20 253 18 Specialty casualty 138 9 110 7 101 7 90 7 108 8 112 8 Specialty property 147 9 154 10 164 12 150 11 134 10 129 10 Other 47 3 23 2 1 - 2 - (16 ) (1 ) 2 - Total $ 1,579 100 % $ 1,506 100 % $ 1,415 100 % $ 1,373 100 % $ 1,344 100 % $ 1,376 100 % 107



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Business reported in this sub-segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making year to year comparisons. The following table summarizes the effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in 2013 compared to 2012 and in 2012 compared to 2011: Gross premiums Net premiums Net premiums written written earned 2013 compared to 2012 Increase in original currency 11 % 11 % 9 % Foreign exchange effect - 1 1 Increase as reported in U.S. dollars 11 % 12 % 10 % 2012 compared to 2011 Increase in original currency 7 % 8 % 3 % Foreign exchange effect (3 ) (3 ) (3 ) Increase (decrease) as reported in U.S. dollars 4 % 5 % - % 2013 compared to 2012 Gross and net premiums written increased by 11% and net premiums earned increased by 9% on a constant foreign exchange basis in 2013 compared to 2012. The increases in gross and net premiums written and net premiums earned were primarily driven by new business written in the agriculture, multiline (included in Other in the above table) and specialty casualty lines of business and upward premium adjustments in the engineering line of business. Notwithstanding the diverse conditions prevailing in various markets within this sub-segment, the Company was able to write business that met its portfolio objectives.



2012 compared to 2011

Gross and net premiums written and net premiums earned increased by 7%, 8% and 3% on a constant foreign exchange basis, respectively, in 2012 compared to 2011. The increases in gross and net premiums written and net premiums earned resulted primarily from the marine and specialty property lines of business primarily due to new business written, while the marine line of business also benefitted from upward prior year premium adjustments. The increase in net premiums earned was lower than the increases in gross and net premiums written due to the earning of the reduced level of premiums written in 2011 given a significant percentage of the business is written on a proportional basis with the impact of these reductions reflected in net premiums earned over time, and the new business written in 2012 is yet to be fully reflected in net premiums earned.



Technical result and technical ratio

The following table provides the components of the technical result and ratio for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Current accident year technical result and ratio Adjusted for large catastrophic losses $ 12 99.2 % $ 66 95.1 % $ 34 97.5 % Large catastrophic losses (1) (15 ) 1.0 (86 ) 6.3 (65 ) 4.8 Prior accident years technical result and ratio Net favorable prior year loss development 227 (15.1 )



251 (18.2 ) 129 (9.4 )

Technical result and ratio, as reported $ 224 85.1 % $ 231 83.2 % $ 98 92.9 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions. 108



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2013 compared to 2012

The decrease of $7 million in the technical result (and the corresponding increase of 1.9 points in the technical ratio) in 2013 compared to 2012 was primarily attributable to:

The current accident year technical result, adjusted for large

catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) due to a higher level of mid-sized loss

activity, a modest increase in the acquisition cost ratio due to higher commissions and normal fluctuations in profitability.



Net favorable prior year loss development-a decrease of $24 million

(increase of 3.1 points in the technical ratio) from $251 million (18.2

points on the technical ratio) in 2012 to $227 million (15.1 points on the

technical ratio) in 2013. The net favorable loss development for prior

accident years in 2013 was driven by all lines of business, predominantly

the aviation/space, marine and specialty property lines. The net favorable

loss development for prior accident years in 2012 is described below.

These factors driving the decrease in the technical result in 2013 compared to 2012 were partially offset by:

Large catastrophic losses-a decrease of $71 million (decrease of 5.3

points in the technical ratio) from $86 million (6.3 points on the

technical ratio) related to Superstorm Sandy in 2012 to $15 million (1.0

points on the technical ratio) related to the Alberta and European Floods

in 2013. 2012 compared to 2011



The increase of $133 million in the technical result (and the corresponding decrease of 9.7 points in the technical ratio) in 2012 compared to 2011 was primarily attributable to:

Net favorable prior year loss development-an increase of $122 million

(decrease of 8.8 points in the technical ratio) from $129 million (9.4

points on the technical ratio) in 2011 to $251 million (18.2 points on the

technical ratio) in 2012. The net favorable loss development for prior

accident years in 2012 was driven by most lines of business, predominantly

the specialty property, aviation/space and marine lines. The net favorable

loss development for prior accident years in 2011 was driven by most lines

of business. The current accident year technical result, adjusted for large



catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) due to a lower level of mid-sized loss

activity in 2012 compared to 2011 and normal fluctuations in profitability

between periods, which were partially offset by lower pricing and a lower level of losses recoverable from retrocessional programs.



These factors driving the increase in the technical result in 2012 compared to 2011 were partially offset by:

Large catastrophic losses-an increase of $21 million (increase of 1.5

points in the technical ratio) from $65 million (4.8 points on the

technical ratio) related to the 2011 catastrophic events to $86 million

(6.3 points on the technical ratio) related to Superstorm Sandy in 2012.

2014 Outlook During the January 1, 2014 renewals, the Company generally observed increased competition across all markets, with pressure on pricing and terms and increased retentions. Overall, and despite these factors, the expected premium volume from the Company's January 1, 2014 renewal, at constant foreign exchange rates, increased compared to the prior year renewal as a result of new growth opportunities in certain specialty lines markets. Management expects a continuation of the observed trends in competition, pricing, terms and retentions during the remainder of 2014. 109



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Catastrophe

The Catastrophe sub-segment writes business predominantly on a non-proportional basis and is exposed to volatility from catastrophic losses, as demonstrated by the sub-segment results for 2013, 2012 and 2011, and as a result, profitability in any one year is not necessarily predictive of future profitability. The Catastrophe sub-segment results for 2013 and 2012 included a comparatively low level of large catastrophic losses resulting from the German Hailstorm, European Floods and Alberta Floods in 2013 and Superstorm Sandy in 2012, while the results for 2011 included a comparatively significant amount of losses from a high frequency of high severity catastrophic events related to the 2011 catastrophic events. The varying amounts of catastrophic losses significantly impacted the technical result and ratio and affected year over year comparisons as discussed below. The Catastrophe sub-segment results are presented before the inter-company quota share of a diversified portfolio of catastrophe treaties to the Company's fully collateralized reinsurance vehicle, Lorenz Re Ltd. (see Note 13 to the Consolidated Financial Statements included in Item 8 of Part II of this report).



The following table provides the components of the technical result and the corresponding ratios for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Gross premiums written $ 495 (1 )% $ 500 (17 )% $ 599 Net premiums written 450 (1 ) 453 (19 ) 562 Net premiums earned $ 453 (1 ) $ 457 (20 ) $ 574 Losses and loss expenses (132 ) 28 (103 ) (93 ) (1,459 ) Acquisition costs (44 ) 3 (42 ) 64 (26 ) Technical result $ 277 (11 ) $ 312 NM $ (911 ) Loss ratio 29.0 % 22.4 % 254.2 % Acquisition ratio 9.7 9.3 4.5 Technical ratio 38.7 % 31.7 % 258.7 % NM: not meaningful Premiums



The Catastrophe sub-segment represented 8%, 10% and 13% of total net premiums written in 2013, 2012 and 2011, respectively.

Business reported in this sub-segment is, to an extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making year to year comparisons. The following table summarizes the effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in 2013 compared to 2012 and in 2012 compared to 2011: Gross premiums Net premiums Net premiums written written earned 2013 compared to 2012 Increase in original currency 1 % 1 % 1 % Foreign exchange effect (2 ) (2 ) (2 ) Decrease as reported in U.S. dollars (1 )% (1 )% (1 )% 2012 compared to 2011 Decrease in original currency (16 )% (19 )% (19 )% Foreign exchange effect (1 ) - (1 ) Decrease as reported in U.S. dollars (17 )% (19 )% (20 )% 110



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2013 compared to 2012

Gross and net premiums written and net premiums earned increased modestly by 1% on a constant foreign exchange basis in 2013 compared to 2012. The increases in gross and net premiums written and net premiums earned were primarily due to certain new business written and were partially offset by cancellations and non-renewals.



2012 compared to 2011

Gross and net premiums written and net premiums earned decreased by 16%, 19% and 19% on a constant foreign exchange basis, respectively, in 2012 compared to 2011. The decreases in gross and net premiums written and net premiums earned were primarily due to the Company reducing certain exposures during 2012 by cancelling and decreasing certain treaty participations and a lower level of reinstatement premiums. These decreases in gross and net premiums written and net premiums earned were partially offset by new business written in 2012.



Technical result and technical ratio

The following table provides the components of the technical result and ratio for this sub-segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Current accident year technical result and ratio Adjusted for large catastrophic losses $ 288 33.8 % $ 338 23.9 % $ 462 15.4 % Large catastrophic losses (1) (102 ) 25.0 (71 ) 17.6 (1,469 ) 260.1 Prior accident years technical result and ratio Net favorable prior year loss development 91 (20.1 ) 45 (9.8 ) 96 (16.8 ) Technical result and ratio, as reported $ 277 38.7 % $ 312 31.7 % $ (911 ) 258.7 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions.

2013 compared to 2012

The decrease of $35 million in the technical result (and the corresponding increase of 7.0 points in the technical ratio) in 2013 compared to 2012 was primarily attributable to:

The current accident year technical result, adjusted for large

catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) primarily due to a higher level of

mid-sized loss activity and normal fluctuations in profitability between

periods. Large catastrophic losses-an increase of $31 million (increase of 7.4



points in the technical ratio) from $71 million (17.6 points on the

technical ratio) related to Superstorm Sandy in 2012 to $102 million (25.0

points on the technical ratio) related to the German Hailstorm, European

Floods and Alberta Floods in 2013.

These factors driving the decrease in the technical result in 2013 compared to 2012 were partially offset by:

Net favorable prior year loss development-an increase of $46 million

(decrease of 10.3 points in the technical ratio) from $45 million (9.8

points on the technical ratio) in 2012 to $91 million (20.1 points on the

technical ratio) in 2013. The net favorable loss development for prior

accident years was primarily due to favorable loss emergence during both 2013 and 2012. 111



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2012 compared to 2011

The increase of $1,223 million in the technical result (and the corresponding decrease of 227.0 points in the technical ratio) in 2012 compared to 2011 was primarily attributable to:



Large catastrophic losses-a decrease of $1,398 million (decrease of 242.5

points in the technical ratio) from $1,469 million (260.1 points on the technical ratio) related to the 2011 catastrophic events and losses related to aggregate contracts covering losses in Australia and New Zealand in 2011 to $71 million (17.6 points on the technical ratio) related to Superstorm Sandy in 2012.



This factor driving the increase in the technical result in 2012 compared to 2011 was partially offset by:

The current accident year technical result, adjusted for large

catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) due to the reduced book of business and

exposure, a modestly higher level of mid-sized loss activity and normal fluctuations in profitability between periods.



Net favorable prior year loss development-a decrease of $51 million

(increase of 7.0 points in the technical ratio) from $96 million (16.8

points on the technical ratio) in 2011 to $45 million (9.8 points on the

technical ratio) in 2012. The net favorable loss development for prior

accident years was primarily due to favorable loss emergence during both

2012 and 2011. 2014 Outlook During the January 1, 2014 renewals, the Company observed a challenging market environment with declining pricing and pressure on terms and conditions in most markets. The exception to this was in certain loss affected markets, where modest price increases were observed. The expected premium volume from the Company's January 1, 2014 renewal, at constant foreign exchange rates, decreased compared to the prior year renewal primarily as a result of the non-renewals of certain treaties due to deterioration in pricing and decreases in participations, which were partially offset by new business. Management expects a continuation of these trends for the remainder of 2014.



Life and Health Segment

Effective January 1, 2013, the Life and Health segment includes the results of PartnerRe Health, following its acquisition on December 31, 2012. The acquisition of PartnerRe Health affects the year over year comparisons of the segment results, primarily in the accident and health line of business, other income and other operating expenses. The following table provides the components of the allocated underwriting result for this segment for the years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 % Change 2012 % Change 2011 Gross premiums written $ 972 21 % $ 802 2 % $ 790 Net premiums written 964 21 799 2 786 Net premiums earned $ 957 20 $ 795 - $ 792 Life policy benefits (760 ) 18 (647 ) (1 ) (650 ) Acquisition costs (125 ) 8 (116 ) (1 ) (117 ) Technical result $ 72 127 $ 32 27 $ 25 Other income 11 177 4 475 1 Other operating expenses (71 ) 36 (52 ) (1 ) (53 ) Net investment income 61 (5 ) 64 (3 ) 66 Allocated underwriting result (1) $ 73 53 $ 48 23 $ 39



(1) Allocated underwriting result is defined as net premiums earned, other income

or loss and allocated net investment income less life policy benefits, acquisition costs and other operating expenses. 112



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Premiums

The Life and Health segment represented 18%, 17% and 18% of total net premiums written in 2013, 2012 and 2011, respectively. The following table summarizes the net premiums written and net premiums earned by line of business for this segment for years ended December 31, 2013, 2012 and 2011 (in millions of U.S. dollars): 2013 2012 2011 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned Accident and health $ 141 15 % $ 140 15 % $ 21 3 % $ 20 3 % $ 21 3 % $ 21 3 % Longevity 249 26 249 26 247 31 247 31 202 26 202 25 Mortality 574 59 568 59 531 66 528 66 563 71 569 72 Total $ 964 100 % $ 957 100 % $ 799 100 % $ 795 100 % $ 786 100 % $ 792 100 % Business reported in this segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making year to year comparisons. The following table summarizes the effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in 2013 compared to 2012 and in 2012 compared to 2011: Gross premiums Net premiums Net premiums written written earned 2013 compared to 2012 Increase in original currency 21 % 20 % 20 % Foreign exchange effect - 1 - Increase as reported in U.S. dollars 21 % 21 % 20 % 2012 compared to 2011 Increase in original currency 6 % 6 % 5 % Foreign exchange effect (4 ) (4 ) (5 ) Increase as reported in U.S. dollars 2 % 2 % - % 2013 compared to 2012 Gross premiums written increased by 21% and net premiums written and earned increased by 20% on a constant foreign exchange basis in 2013 compared to 2012. The increases in gross and net premiums written and net premiums earned were primarily due to the inclusion of PartnerRe Health's accident and health business in 2013 and, to a lesser extent, growth in the mortality line of business.



2012 compared to 2011

Gross and net premiums written and net premiums earned increased by 6%, 6% and 5% on a constant foreign exchange basis, respectively, in 2012 compared to 2011. The increases in gross and net premiums written resulted from the longevity line driven by new business written during the fourth quarter of 2011, which was partially offset by a decrease in the GMDB business in the mortality line.



Allocated underwriting result

2013 compared to 2012

The allocated underwriting result increased by $25 million, from $48 million in 2012 to $73 million in 2013. The increase was primarily driven by a higher level of net favorable prior year loss development in 2013 compared to 2012, the inclusion of PartnerRe Health's results and an increase in other income. These factors driving the increase in the allocated underwriting result were partially offset by higher operating expenses. 113



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The increase in net favorable prior year loss development of $25 million reflects net favorable loss development of $39 million in 2013 compared to $14 million in 2012. The net favorable prior year loss development of $39 million in 2013 was primarily related to the GMDB business and, to a lesser extent, certain short-term treaties in the mortality line of business. The favorable development was primarily due to favorable claims experience, data updates received from cedants and improvements in the capital markets related to the GMDB business. The net favorable prior year loss development in 2012 is described below.



Other income increased by $7 million, from $4 million in 2012 to $11 million in 2013 primarily due to the inclusion of the MGA fees earned by PartnerRe Health.

Other operating expenses increased by $19 million, from $52 million in 2012 to $71 million in 2013 primarily due to the inclusion of PartnerRe Health's operating expenses and higher bonus accruals. The overall impact on the allocated underwriting result of including PartnerRe Health's operating expenses was partially offset by the MGA fees earned by PartnerRe Health, which are included in other income.



2012 compared to 2011

The allocated underwriting result increased by $9 million, from $39 million in 2011 to $48 million in 2012. The increase was primarily due to an increased level of net favorable prior year loss development of $13 million in the mortality line of business, as described below. To a lesser extent, the increase was due to improvements in the profitability of the longevity line of business driven by the new business written during the fourth quarter of 2011 and an increase in other income due to a higher volume of insurance-linked securities and treaties accounted for using deposit accounting, where the Company earns a margin. These increases were partially offset by an increase in claims activity on certain long-term treaties in the mortality line of business. The increase in the net favorable prior year loss development of $13 million reflects net favorable loss development of $14 million in 2012 compared to net favorable loss development of $1 million in 2011. The net favorable prior year loss development of $14 million in 2012 was primarily due to the GMDB business, mainly driven by improvements in the capital markets, and due to certain short-term treaties in the mortality line of business. The modest net favorable prior year loss development of $1 million in 2011 was the net result of favorable prior year loss development of $11 million related to certain mortality treaties and the GMDB business, which was almost entirely offset by adverse prior year loss development related to disability riders on certain short-term non-proportional treaties in the mortality line.



2014 Outlook

The acquisition of PartnerRe Health is expected to continue contributing to overall premium growth in the Life and Health segment in 2014 due to its transition from an MGA to a carrier. At the January 1, 2014 renewals, opportunities in managed care and specialty lines of the PartnerRe Health business were observed as a result of the implementation of the Patient Protection and Affordable Care Act. At the time of acquisition, PartnerRe Health operated as an MGA, writing all of its business on behalf of third party insurance companies and earning a fee for producing the business. The third party insurance companies then ceded a portion of the original business written through quota share agreements to PartnerRe Health's reinsurance subsidiary. During 2013, the Company obtained the necessary licenses and approvals and began transitioning the portfolio to PartnerRe carriers. As of January 1, 2014, virtually all of the PartnerRe Health business is originated directly, without the use of third party insurance companies. As such, PartnerRe Health's premiums are expected to grow in 2014 and the MGA fees will be substantially reduced. In terms of the Company's Life portfolio, the majority of the premium arises from long-term in-force contracts. The active January 1 renewals impact a relatively limited portion of the short-term in-force premium in the mortality line. For those treaties that actively renewed, pricing conditions and terms were modestly softer from the January 1, 2013 renewals. Management expects moderate continued growth in the Company's Life portfolio in 2014, assuming constant foreign exchange rates. 114



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Premium Distribution by Line of Business

The distribution of net premiums written by line of business for the years ended December 31, 2013, 2012 and 2011 was as follows:

2013 2012 2011 Non-life Property and casualty Casualty 12 % 13 % 11 % Motor 7 5 5 Multiline and other 4 3 2 Property 12 14 15 Specialty Agriculture 11 7 7 Aviation / Space 4 5 5 Catastrophe 8 10 13 Credit / Surety 6 7 7 Energy 2 2 2 Engineering 4 4 4 Marine 6 7 6 Specialty casualty 3 2 2 Specialty property 3 4 3 Life and Health 18 17 18 Total 100 % 100 % 100 % The changes in the distribution of net premiums written by line of business between 2013, 2012 and 2011 reflected the Company's response to existing market conditions. The distribution of net premiums written may also be affected by the timing of renewals of treaties, a change in treaty structure, premium adjustments reported by cedants and significant increases or decreases in other lines of business. In addition, foreign exchange fluctuations affected the comparison for all lines.



Property: the decrease in the distribution of net premiums written between

2013 and 2012 was primarily driven by more significant increases in other

lines of business relative to the absolute increase in property premiums

of 2%. The decrease in the distribution of net premiums written between

2012 and 2011 was driven primarily by the effects of the Company's decisions to reduce certain exposures, which has included reducing the level of catastrophe exposed business and lower pricing.



Agriculture: the increase in the distribution of net premiums written in

2013 compared to 2012 and 2011 was driven by new business written in the

North America sub-segment and, to a lesser extent, in the Global Specialty

sub-segment.



Catastrophe: the decrease in the distribution of net premiums written in

2013 was primarily driven by more significant increases in other lines of

business relative to catastrophe premiums which were essentially flat. The

decrease in the distribution of net premiums written between 2013 and 2012

compared to 2011 was due to the Company reducing certain exposures by cancelling and decreasing treaty participations.



2014 Outlook

Based on information received from cedants and brokers during the January 1, 2014 renewals, and assuming that similar trends and conditions to those experienced during the January 1, 2014 renewals continue through the year, Management expects the distribution of net premiums written by lines to be broadly comparable to 2013. The exceptions to this are expected to be a further relative decrease in the catastrophe line of business due to a decrease in the January 1, 2014 renewal premium and a relative increase in the Life and Health segment due to all of the PartnerRe Health business being written by the Company directly for 2014. 115



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Premium Distribution by Reinsurance Type

The Company typically writes business on either a proportional or non-proportional basis. On proportional business, the Company shares proportionally in both the premiums and losses of the cedant. On non-proportional business, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio. In both proportional and non-proportional business, the Company typically reinsures a large group of primary insurance contracts written by the ceding company. In addition, the Company writes business on a facultative basis. Facultative arrangements are generally specific to an individual risk and can be written on either a proportional or non-proportional basis. Generally, the Company has more influence over pricing, as well as terms and conditions, in non-proportional and facultative arrangements.



The distribution of gross premiums written by reinsurance type for the years ended December 31, 2013, 2012 and 2011 was as follows:

2013 2012 2011 Non-life segment Proportional 55 % 50 % 47 % Non-proportional 20 25 27 Facultative 7 8 8 Life and Health segment 18 17 18 Total 100 % 100 % 100 %



(1) Substantially all of the Life segment's gross premiums written for the

periods presented are written on a proportional basis.

The distribution of gross premiums written by reinsurance type is affected by changes in the allocation of capacity among lines of business, the timing of receipt by the Company of cedant accounts and premium adjustments by cedants. In addition, foreign exchange fluctuations affected the comparison for all treaty types. The changes in the distribution of gross premiums written by reinsurance type between 2013 and 2012 primarily reflect a shift from non-proportional business to proportional business in the Non-life segment. This shift was driven by all Non-life sub-segments, except for the Catastrophe sub-segment, and specifically included an increase in gross premiums written in the agriculture line of business, which is predominantly written on a proportional basis. In addition, the shift was also driven by a relative decrease as a percentage of total gross premiums written, as discussed in Premium Distribution by Line of business above, in the Catastrophe sub-segment's gross premiums written, which are predominantly written on a non-proportional basis. The changes in the distribution of gross premiums written by reinsurance type between 2012 and 2011 primarily reflect a shift from non-proportional business to proportional business in the Non-life segment. This shift was driven by an increase in the casualty and property lines of business in the North America sub-segment and by a reduction in the business written in the Catastrophe sub-segment.



2014 Outlook

Based on renewal information from cedants and brokers during the January 1, 2014 renewals, and assuming that similar trends and conditions to those experienced during the January 1, 2014 renewals continue through the year, Management expects the relative distribution of gross premiums written by reinsurance type to shift modestly from non-proportional business to proportional business. This expected modest shift in the distribution of gross premiums written reflects the expected relative decrease in the Catastrophe sub-segment's gross premiums written, which are primarily written on a non-proportional basis, as discussed above. The Company writes a large majority of its business on a treaty basis and renews approximately 65% of its total annual Non-life treaty business on January 1. The remainder of the Non-life treaty business renews at other times during the year, therefore this outlook is subject to limited information relative to the treaty business primarily renewed during the January 1 renewal period. 116



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Premium Distribution by Geographic Region

The following table provides the geographic distribution of gross premiums written based on the location of the underlying risk for the years ended December 31, 2013, 2012 and 2011:

2013 2012 2011 Asia, Australia and New Zealand 11 11 12 Europe 40 41 41 Latin America, Caribbean and Africa 10 11 11 North America 39 37 36 Total 100 % 100 % 100 % The increase in the distribution of gross premiums written in North America in 2013 compared to 2012 was primarily due to an increase in gross premiums written in the Company's North America Non-life sub-segment and in the Life and Health segment. The increase in the North America sub-segment was primarily driven by the agriculture line. The increase in the Life and Health segment was driven by the inclusion of PartnerRe Health business from January 1, 2013.



The distribution of gross premiums written in 2012 was comparable to 2011.

2014 Outlook

Based on information received from cedants and brokers during the January 1, 2014 renewals, and assuming that similar trends and conditions to those experienced during the January 1, 2014 renewals continue through the year and based on constant foreign exchange rates, Management expects the distribution of gross premiums written by geographic region in 2014 to shift modestly from most geographic regions to North America as a result of the expected relative increases in gross premiums written in the North America sub-segment and the Life and Health segment as described above in the sub-segment and segment results.



Premium Distribution by Production Source

The Company generates its gross premiums written both through brokers and through direct relationships with cedants. The percentage of gross premiums written by production source for the years ended December 31, 2013, 2012 and 2011 was as follows: 2013 2012 2011 Broker 71 % 69 % 72 % Direct 29 31 28 Total 100 % 100 % 100 % The percentage of gross premiums written through brokers in 2013 compared to 2012 increased slightly due to an increase in the percentage of gross premiums written through brokers in Europe and North America and the inclusion of PartnerRe Health business, which is solely written through brokers. The percentage of gross premiums written through brokers in 2012 decreased compared to 2011 due to a decrease in the business written through brokers, and an increase in the business written directly in the Company's Global (Non-U.S.) P&C and Specialty sub-segments and a decrease related to certain treaties written through brokers in the Catastrophe sub-segment



2014 Outlook

Based on information received from cedants and brokers during the January 1, 2014 renewals, and assuming that similar trends and conditions to those experienced during the January 1, 2014 renewals continue through the year, Management expects the production source of gross premiums written in 2014 to be comparable to 2013. 117



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Corporate and Other

Corporate and Other is comprised of the Company's capital markets and investment related activities, including principal finance transactions, insurance-linked securities and strategic investments, and its corporate activities, including other operating expenses. Net Investment Income



Net investment income by asset source for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars):

2013 % Change 2012 % Change 2011 Fixed maturities $ 446 (13 )% $ 513 (9 )% $ 562 Short-term investments, cash and cash equivalents 2 (35 ) 3 (24 ) 4 Equities 33 26 26 32 20 Funds held and other 34 (22 ) 44 (11 ) 49 Funds held - directly managed 21 (29 ) 29 (23 ) 38 Investment expenses (52 ) 18 (44 ) 1 (44 ) Net investment income $ 484 (15 ) $ 571 (9 ) $ 629 Because of the interest-sensitive nature of some of the Company's life products within the Life and Health segment, net investment income is considered in Management's assessment of the profitability of the Life and Health segment (see Life and Health segment above). The following discussion includes net investment income from all investment activities, including the net investment income allocated to the Life and Health segment.



2013 compared to 2012

Net investment income decreased in 2013 compared to 2012 due to:

a decrease in net investment income from fixed maturities primarily as a

result of lower reinvestment rates and, to a lesser extent, cash outflows

from the fixed maturity portfolio primarily to finance the Company's share

repurchase activity; a decrease in net investment income from funds held and other primarily due to lower investment income reported by cedants; and a decrease in net investment income from funds held - directly managed



primarily related to the lower average balance in the funds held -

directly managed account, which was driven by the release of assets due to

the run-off of the underlying liabilities and lower reinvestment rates;

partially offset by an increase in net investment income from equities primarily as a result



of higher dividend income.

2012 compared to 2011

Net investment income decreased in 2012 compared to 2011 primarily due to:

a decrease in net investment income from fixed maturities as a result of

lower reinvestment rates; a decrease in net investment income from funds held - directly managed

primarily related to the lower average balance in the funds held - directly managed account, as discussed above; and



the strengthening of the U.S. dollar, on average, in 2012 compared to

2011, which contributed a 1% decrease in net investment income; partially

offset by an increase in dividends received from equities in 2012. 118



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2014 Outlook

Assuming constant foreign exchange rates, Management expects net investment income to decrease in 2014 compared to 2013 primarily due to lower reinvestment rates with low yields expected to continue throughout 2014. Management expects this decrease to be partially offset by expected positive cash flow from operations (including net investment income).



Net Realized and Unrealized Investment (Losses) Gains

The Company's portfolio managers have dual investment objectives of optimizing current investment income and achieving capital appreciation. To meet these objectives, it is often desirable to buy and sell securities to take advantage of changing market conditions and to reposition the investment portfolios. Accordingly, recognition of realized gains and losses is considered by the Company to be a normal consequence of its ongoing investment management activities. In addition, the Company records changes in fair value for substantially all of its investments as unrealized investment gains or losses in its Consolidated Statements of Operations. Realized and unrealized investment gains and losses are generally a function of multiple factors, with the most significant being prevailing interest rates, credit spreads, and equity market conditions. The components of net realized and unrealized investment (losses) gains for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions of U.S. dollars): 2013



2012 2011 Net realized investment gains on fixed maturities and short-term investments

$ 119$ 173$ 157 Net realized investment gains on equities 75 72 91 Net realized investment gains (losses) on other invested assets 20



(16 ) (176 ) Change in net unrealized investment gains (losses) on other invested assets

57



(9 ) (46 ) Change in net unrealized investment (losses) gains on fixed maturities and short-term investments

(526 ) 186 128



Change in net unrealized investment gains (losses) on equities

118



66 (102 ) Net other realized and unrealized investment (losses) gains

(2 ) 6 4



Net realized and unrealized investment (losses) gains on funds held - directly managed

(22 ) 16 11



Net realized and unrealized investment (losses) gains $ (161 )$ 494$ 67

2013 compared to 2012 Net realized and unrealized investment losses increased by $655 million, from a gain of $494 million in 2012 to a loss of $161 million in 2013. The net realized and unrealized investment losses of $161 million in 2013 were primarily due to increases in U.S. and European risk-free interest rates, which were partially offset by improvements in worldwide equity markets, gains on treasury note futures, narrowing credit spreads and an unrealized gain related to the initial public offering of an investment in a mortgage guaranty insurance company. Net realized and unrealized investment gains were $494 million in 2012 and are described below. Net realized and the change in net unrealized investment gains on other invested assets were a combined gain of $77 million in 2013 and primarily related to treasury note futures. Net realized and the change in net unrealized investment losses on other invested assets were a combined loss of $25 million in 2012 and are described below. Net realized and unrealized investment (losses) gains on funds held - directly managed of $22 million loss and $16 million gain in 2013 and 2012, respectively, primarily related to the change in net unrealized investment (losses) gains on fixed maturities in the segregated investment portfolio underlying the funds held - directly managed account and were driven by changes in risk-free interest rates. 119



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2012 compared to 2011

Net realized and unrealized investment gains increased by $427 million, from $67 million in 2011 to $494 million in 2012. The net realized and unrealized investment gains of $494 million in 2012 were primarily due to narrowing credit spreads, improvements in worldwide equity markets and decreases in U.S. and European risk-free interest rates. The net realized and unrealized investment gains of $67 million in 2011 were primarily due to declining U.S. and European risk-free interest rates, which were partially offset by widening credit spreads, realized and unrealized losses on treasury note futures and losses on insurance-linked securities impacted by the Japan Earthquake. Net realized and the change in net unrealized investment losses on other invested assets were a combined loss of $25 million in 2012 primarily due to realized losses on treasury note futures. Net realized and the change in net unrealized investment losses on other invested assets were a combined loss of $222 million in 2011 and primarily related to realized and unrealized losses on treasury note futures, net realized and unrealized losses on certain non-publicly traded investments, and a realized loss on insurance-linked derivative securities impacted by the Japan Earthquake. Net realized and unrealized investment gains on funds held - directly managed of $16 million and $11 million in 2012 and 2011, respectively, primarily related to net realized and the change in net unrealized investment gains on fixed maturities in the segregated investment portfolio underlying the funds held - directly managed account and were driven by decreases in risk-free interest rates.



Other Operating Expenses

The Company's total other operating expenses for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions of U.S. dollars):

2013 % Change 2012 %



Change 2011

Other operating expenses $ 500 22 % $ 411



(5 )% $ 435

Other operating expenses represent 9.6%, 9.2% and 9.4% of net premiums earned (Non-life and Life and Health) for the years ended December 31, 2013, 2012 and 2011, respectively. Other operating expenses included in Corporate and Other were $170 million, $102 million and $99 million, of which $163 million (including $58 million of restructuring charges as described above in Overview), $88 million and $83 million are related to corporate activities for the years ended December 31, 2013, 2012 and 2011, respectively.



2013 compared to 2012

Other operating expenses increased by 22% in 2013 compared to 2012 primarily due to the restructuring charges and higher bonus accruals.

2012 compared to 2011

Other operating expenses decreased by 5% in 2012 compared to 2011 primarily due to the impact of foreign exchange fluctuations which decreased other operating expenses by 3% due to the stronger U.S. dollar. To a lesser extent, the decrease was also due to decreases in information technology, banking-related and travel costs. Income Taxes The Company's effective income tax rate, which we calculate as income tax expense or benefit divided by net income or loss before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income or loss in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax net income 120



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or loss can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned; the geographic location, quantum and nature of net losses and loss expenses incurred; the quantum and geographic location of other operating expenses, net investment income, net realized and unrealized investment gains and losses; and the quantum of specific adjustments to determine the income tax basis in each of the Company's operating jurisdictions. In addition, a significant portion of the Company's gross and net premiums are currently written and earned in Bermuda, a non-taxable jurisdiction, including the majority of the Company's catastrophe business, which can result in significant volatility in the Company's pre-tax net income or loss from period to period. The Company's income tax expense and effective income tax rate for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions of U.S. dollars): 2013 2012 2011 Income tax expense $ 49$ 204$ 69 Effective income tax rate 6.7 % 15.3 % (15.3 )% 2013 compared to 2012 Income tax expense and the effective income tax rate during 2013 were $49 million and 6.7%, respectively. Income tax expense and the effective income tax rate during 2013 were primarily driven by the geographic distribution of the Company's pre-tax net income between its various taxable and non-taxable jurisdictions. Specifically, the income tax expense and the effective income tax rate included a significant portion of the Company's pre-tax net income recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates driven by net favorable prior year loss development, which were partially offset by catastrophe losses. The Company's pre-tax net income recorded in jurisdictions with comparatively higher tax rates was driven by net favorable prior year loss development, which was partially offset by net realized and unrealized investment losses, catastrophe losses and restructuring charges. In addition, the income tax expense recorded in jurisdictions with comparatively higher tax rates included certain true-up to tax return adjustments and certain one-time charges related to changes in the French tax code. Income tax expense and the effective income tax rate during 2012 were $204 million and 15.3%, respectively. Income tax expense and the effective income tax rate during 2012 were primarily driven by the geographic distribution of the Company's pre-tax net income between its various taxable and non-taxable jurisdictions. Specifically, the income tax expense and the effective income tax rate included a relatively even distribution of the Company's pre-tax net income between its various jurisdictions. The Company's pre-tax net income recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates reflects net favorable prior year loss development and net realized and unrealized investment gains, which were partially offset by catastrophe losses. The Company's pre-tax net income recorded in jurisdictions with comparatively higher tax rates was driven by net favorable prior year loss development and net realized and unrealized investment gains, which were partially offset by catastrophe losses.



2012 compared to 2011

Income tax expense and the effective income tax rate during 2012 were $204 million and 15.3%, respectively, as described above.

Income tax expense and the effective income tax rate during 2011 were $69 million and (15.3)%, respectively. Income tax expense and the effective income tax rate during 2011 were primarily driven by the geographic distribution of the Company's pre-tax net loss between its various taxable and non-taxable jurisdictions. Specifically, the income tax expense and the effective income tax rate included a significant portion of the Company's pre-tax net loss recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates with no associated tax benefit, which were driven by losses related to the 2011 catastrophic events. The Company's taxable jurisdictions recorded pre-tax net income and an income tax expense, which 121



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resulted from a relatively low level of catastrophe losses and realized and unrealized investment gains. The income tax expense recorded by the Company's taxable jurisdictions was partially offset by the recognition of a tax benefit during 2011 related to the expiration of the statute of limitations of uncertain tax positions following the completion of certain tax examinations.



Financial Condition, Liquidity and Capital Resources

The Company purchased, as part of its acquisition of Paris Re, an investment portfolio and a funds held - directly managed account. The discussion of the acquired Paris Re investment portfolio is included in the discussion of Investments below. The discussion of the segregated investment portfolio underlying the funds held - directly managed account is included separately in Funds Held - Directly Managed below.



Investments

Investment philosophy

The Company employs a prudent investment philosophy. It maintains a high quality, well balanced and liquid portfolio having the dual objectives of optimizing current investment income and achieving capital appreciation. The Company's invested assets are comprised of total investments, cash and cash equivalents and accrued investment income. From a risk management perspective, the Company allocates its invested assets into two categories: liability funds and capital funds. Liability funds (including funds held - directly managed) represent invested assets supporting the net reinsurance liabilities, defined as the Company's operating and reinsurance liabilities net of reinsurance assets, and are invested primarily in high quality fixed maturity securities. The preservation of liquidity and protection of capital are the primary investment objectives for these assets. The portfolio managers are required to adhere to investment guidelines as to minimum ratings and issuer and sector concentration limitations. Liability funds are invested in a way that generally matches them to the corresponding liabilities (referred to as asset-liability matching) in terms of both duration and major currency composition to provide the Company with a natural hedge against changes in interest and foreign exchange rates. In addition, the Company utilizes certain derivatives to further protect against changes in interest and foreign exchange rates. Capital funds represent shareholder capital of the Company and are invested in a diversified portfolio with the objective of maximizing investment return, subject to prudent risk constraints. Capital funds contain most of the asset classes typically viewed as offering a higher risk and higher return profile, subject to risk assumption and portfolio diversification guidelines which include issuer and sector concentration limitations. Capital funds may be invested in investment grade and below investment grade fixed maturity securities, preferred and common stocks, private placement equity and bond investments, emerging markets and high-yield fixed income securities and certain other specialty asset classes. The Company believes that an allocation of a portion of its investments to equities is both prudent and desirable, as it helps to achieve broader asset diversification (lower risk) and maximizes the portfolio's total return over time. The Company's total invested assets (including funds held - directly managed) at December 31, 2013 and 2012 were split between liability and capital funds as follows (in millions of U.S. dollars): % of Total % of Total 2013 Invested Assets 2012 Invested Assets Liability funds $ 10,366 59 % $ 10,723 59 % Capital funds 7,118 41 7,453 41 Total invested assets $ 17,484 100 % $ 18,176 100 % The decrease of $692 million in total invested assets at December 31, 2013 compared to December 31, 2012 was primarily related to decreases in fixed maturities and investments underlying the funds held - directly managed account, which were partially offset by increases in cash and equities. The decrease in fixed maturities 122



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was primarily related to the sale and maturity of fixed maturities to fund the Company's share repurchases and dividends and increases in U.S. and European risk-free interest rates. The decrease in the funds held - directly managed account, was primarily driven by the run-off of the related loss reserves and increases in U.S. and European risk-free interest rates. The increase in equities was primarily related to an unrealized gain recorded on the initial public offering of an investment and improvements in worldwide equity markets. The liability funds were comprised of cash and cash equivalents, accrued investment income and high quality fixed income securities. The decrease in the liability funds at December 31, 2013 compared to December 31, 2012 was primarily driven by an increase in net reinsurance assets related to business written during 2013. The capital funds were generally comprised of accrued investment income, investment grade and below investment grade fixed maturity securities, preferred and common stocks, private placement equity and bond investments, emerging markets and high-yield fixed income securities and certain other specialty asset classes. The decrease in the capital funds at December 31, 2013 compared to December 31, 2012 was primarily driven by the decrease in total invested assets, as described above. At December 31, 2013, approximately 60% of the capital funds were invested in cash and cash equivalents and investment grade fixed income securities. The Company's investment strategy allows for the use of derivative instruments, subject to strict limitations. The Company utilizes various derivative instruments such as treasury note and equity futures contracts, credit default swaps, foreign currency option contracts, foreign exchange forward contracts, total return and interest rate swaps, insurance-linked securities and TBAs for the purpose of managing and hedging currency risk, market exposure and portfolio duration, hedging certain investments, mitigating the risk associated with underwriting operations, or enhancing investment performance that would be allowed under the Company's investment policy if implemented in other ways. The use of financial leverage, whether achieved through derivatives or margin borrowing, requires approval from the Risk and Finance Committee of the Board.



Overview

Total investments and cash (excluding the funds held - directly managed account) were $16.6 billion at December 31, 2013 compared to $17.1 billion at December 31, 2012. The major factors contributing to the decrease during 2013 were: a net decrease of $616 million, due to the repurchase of common shares of



$695 million under the Company's share repurchase program, partially

offset by the issuance of common shares under the Company's employee

equity plans of $79 million;



net realized and unrealized losses related to the investment portfolio of

$139 million primarily resulting from a decrease in the fixed maturity and

short-term investment portfolios of $407 million primarily reflecting

increasing U.S. and European risk-free interest rates and reduced by the impact of narrowing credit spreads, which was partially offset by an



increase in the equity portfolio of $193 million and an increase in other

invested assets of $77 million driven by gains on treasury note futures

(see discussion related to duration below);



dividend payments on common and preferred shares totaling $200 million;

an increase in net receivable for securities sold of $101 million;

a net payment of $48 million related to the redemption of Series C



preferred shares of $290 million, which was partially offset by proceeds

related to the issuance of the Series F preferred shares of $242 million,

after underwriting discounts and commissions (see Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of this report and Contractual Obligations, Commitments and Contingencies and Shareholders' Equity and Capital Resources Management below); and



various other factors which net to approximately $173 million, the largest

being the amortization of net premium on investments; partially offset by

net cash provided by operating activities of $827 million. 123



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Trading securities

The following discussion relates to the composition of the Company's trading securities, the Company's other invested assets and the investments underlying the funds held - directly managed account are discussed separately below. Trading securities are carried at fair value with changes in fair value included in net realized and unrealized investment gains and losses in the Consolidated Statements of Operations.



At December 31, 2013, approximately 95% of the Company's fixed maturity and short-term investments, which includes fixed income type mutual funds, were publicly traded and approximately 92% were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent).

The average credit quality, the average yield to maturity and the expected average duration of the Company's fixed maturities and short-term investments, which includes fixed income type mutual funds, at December 31, 2013 and 2012 were as follows: 2013 2012 Average credit quality A A Average yield to maturity 2.5 % 2.0 % Expected average duration 3.0 years 2.7 years The increases in the average yield to maturity and the expected average duration on fixed maturities, short-term investments and cash and cash equivalents at December 31, 2013 compared to December 31, 2012, were primarily due to increases in U.S. and European risk-free interest rates during 2013. The average credit quality of A at December 31, 2013 was comparable to December 31, 2012.



For the purposes of managing portfolio duration, the Company uses exchange traded treasury note futures. The use of treasury note futures reduced the expected average duration of the investment portfolio from 3.9 years to 3.0 years at December 31, 2013, and reflects the Company's decision to continue to hedge against potential further rises in risk-free interest rates.

The Company's investment portfolio generated a total accounting return (calculated based on the carrying value of all investments in local currency) of 1.8% in 2013 compared to 6.5% in 2012. The total accounting return in 2013 was mainly due to improvements in equity markets and narrowing credit spreads which were partially offset by increases in U.S. and European risk-free interest rates. The total accounting return in 2012 was primarily impacted by narrowing credit spreads, improvements in equity markets and modest declines in U.S. and European risk-free interest rates. 124



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The cost, fair value and credit ratings of the Company's fixed maturities, short-term investments and equities classified as trading at December 31, 2013 and 2012 were as follows (in millions of U.S. dollars):

Credit Rating(2) Below investment Fair grade/ December 31, 2013 Cost (1) Value AAA AA A BBB Unrated Fixed maturities U.S. government $ 1,610$ 1,599 $ - $ 1,599 $ - $ - $ - U.S. government sponsored enterprises 25 25 - 25 - - - U.S. states, territories and municipalities 122 124 7 6 - 3 108 Non-U.S. sovereign government, supranational and government related 2,295 2,354 950 1,295 99 10 - Corporate 5,867 6,049 226 576 2,640 2,150 457 Asset-backed securities 1,127 1,138 319 187 140 8 484 Residential mortgage-backed securities 2,295 2,268 369 1,844 37 3 15 Other mortgage-backed securities 35 36 27 6 - 1 2 Fixed maturities 13,376 13,593 1,898 5,538 2,916 2,175 1,066 Short-term investments 14 14 11 - 1 2 - Total fixed maturities and short-term investments $ 13,390$ 13,607$ 1,909$ 5,538$ 2,917$ 2,177$ 1,066 Equities 1,009 1,221 Total $ 14,399$ 14,828



% of Total fixed maturities and short-term investments 14 %

41 % 21 % 16 % 8 % Credit Rating(2) Below investment Fair grade/ December 31, 2012 Cost (1) Value AAA AA A BBB Unrated Fixed maturities U.S. government $ 1,092$ 1,113 $ - $ 1,113 $ - $ - $ - U.S. government sponsored enterprises 17 18 - 18 - - - U.S. states, territories and municipalities 232 243 7 - - 3 233 Non-U.S. sovereign government, supranational and government related 2,221 2,376 872 1,401 92 11 - Corporate 6,198 6,656 427 625 3,089 2,153 362 Asset-backed securities 701 723 153 117 80 13 360 Residential mortgage-backed securities 3,129 3,200 385 2,672 57 - 86 Other mortgage-backed securities 64 66 55 - 7 2 2 Fixed maturities 13,654 14,395 1,899 5,946 3,325 2,182 1,043 Short-term investments 151 151 16 110 14 4 7 Total fixed maturities and short term investments $ 13,805$ 14,546$ 1,915$ 6,056$ 3,339$ 2,186$ 1,050 Equities 1,000 1,094 Total $ 14,805$ 15,640



% of Total fixed maturities and short-term investments 13 %

42 % 23 % 15 % 7 % 125



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(1) Cost is amortized cost for fixed maturities and short-term investments and

cost for equity securities.

(2) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). Investment grade reflects a rating of BBB- or above.

The decrease of $0.8 billion in the fair value of the Company's fixed maturities from $14.4 billion at December 31, 2012 to $13.6 billion at December 31, 2013 primarily reflects the sale and maturity of fixed maturities to fund the Company's share repurchases and dividend payments and increases in U.S. and European risk-free interest rates. At December 31, 2013, there has been a shift in the distribution of the fixed maturity portfolio compared to December 31, 2012 as the Company decreased its holdings of corporate bonds and residential mortgage-backed securities (primarily due to narrowing credit spreads), and increased its holdings of U.S. government securities and asset-backed securities.



The U.S. government category includes U.S. treasuries which are not rated, however, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues.

The U.S. government sponsored enterprises (GSEs) category includes securities that carry the implicit backing of the U.S. government and securities issued by U.S. government agencies (such as the Federal Home Loan Mortgage Corporation, or Freddie Mac as it is commonly known, and the Federal National Mortgage Association, or Fannie Mae as it is commonly known). At December 31, 2013, 91% of this category was rated AA with the remaining 9%, although not specifically rated, generally considered to have a credit quality equivalent to AA+ corporate issues.



The U.S. states, territories and municipalities category includes obligations of U.S. states, territories, or counties.

The non-U.S. sovereign government, supranational and government related category includes obligations of non-U.S. sovereign governments, political subdivisions, agencies and supranational debt. The fair value and credit ratings of non-U.S. sovereign government, supranational and government related obligations at December 31, 2013 were as follows (in millions of U.S. dollars): Non-U.S. Non-U.S. Total Credit Rating(1) Sovereign Supranational Government Fair December 31, 2013 Government Debt Related Value AAA AA A BBB Non-European Union Canada $ 140 $ - $ 319$ 459$ 191$ 174$ 94 $ - New Zealand 110 - - 110 - 110 - - Singapore 98 - - 98 98 - - - All Other 45 - 5 50 14 21 5 10 Total Non-European Union $ 393 $ - $ 324$ 717$ 303$ 305$ 99$ 10 European Union France $ 433 $ - $ 18 $ 451 $ - $ 451 $ - $ - Germany 346 - - 346 346 - - - Netherlands 242 - - 242 242 - - - Belgium 234 - - 234 - 234 - - Austria 197 - - 197 - 197 - - All Other 45 122 - 167 59 108 - - Total European Union $ 1,497 $ 122 $ 18 $ 1,637$ 647$ 990 $ - $ - Total $ 1,890 $ 122 $ 342$ 2,354$ 950$ 1,295$ 99$ 10 % of Total 80 % 5 % 15 % 100 % 40 % 55 % 4 % 1 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). 126



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At December 31, 2013, the Company did not have any investments in securities issued by peripheral European Union (EU) sovereign governments (Portugal, Italy, Ireland, Greece and Spain). Corporate bonds are comprised of obligations of U.S. and foreign corporations. The fair values of corporate bonds issued by U.S. and foreign corporations by economic sector at December 31, 2013 were as follows (in millions of U.S. dollars): Percentage to Total Fair Value of Total Fair Corporate

December 31, 2013 U.S. Foreign Value Bonds Sector Finance $ 1,120$ 415$ 1,535 25 % Consumer noncyclical 597 238 835 14 Communications 411 396 807 13 Utilities 313 259 572 9 Energy 210 261 471 8 Industrials 335 128 463 8 Consumer cyclical 320 51 371 6 Insurance 245 38 283 5 Basic materials 76 120 196 3 Government guaranteed corporate debt - 174 174 3 Technology 122 - 122 2 All Other 110 110 220 4 Total $ 3,859$ 2,190$ 6,049 100 % % of Total 64 % 36 % 100 %



At December 31, 2013, other than the U.S., no other country accounted for more than 10% of the Company's corporate bonds.

At December 31, 2013, the ten largest issuers accounted for 18% of the corporate bonds held by the Company (7% of total investments and cash) and no single issuer accounted for more than 3% of total corporate bonds (2% of total investments and cash). Within the finance sector, substantially all (more than 99%) corporate bonds were rated investment grade and 82% were rated A- or better at December 31, 2013. At December 31, 2013, the fair value of the Company's corporate bond portfolio issued by companies in the European Union was as follows (in millions of U.S. dollars): Government Finance Non-Finance Guaranteed Sector Corporate Sector Corporate Total Fair

December 31, 2013 Corporate Debt Bonds Bonds Value European Union United Kingdom $ - $ 118 $ 449 $ 567 Netherlands 27 27 185 239 France - 22 157 179 Italy - 17 87 104 Spain - 14 85 99 Germany 60 8 5 73 Luxembourg - - 68 68 All Other 27 17 70 114 Total $ 114 $ 223 $ 1,106 $ 1,443 % of Total 8 % 15 % 77 % 100 % 127



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At December 31, 2013, the Company did not hold any government guaranteed corporate debt issued in peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain) and held less than $49 million in total finance sector corporate bonds issued by companies in those countries.

Asset-backed securities, residential mortgaged-backed securities and other mortgaged-backed securities include U.S. and non-U.S. originations. The fair value and credit ratings of asset-backed securities, residential mortgaged-backed securities and other mortgaged-backed securities at December 31, 2013 were as follows (in millions of U.S. dollars):

Credit Rating(1) Below investment grade/ Total Fair December 31, 2013 GNMA (2) GSEs (3) AAA AA A BBB Unrated Value Asset-backed securities U.S. $ - $ - $ 169$ 104$ 111$ 1$ 484$ 869 Non-U.S. - - 150 83 29 7 - 269 Asset-backed securities $ - $ - $ 319$ 187$ 140$ 8$ 484$ 1,138 Residential mortgaged-backed securities U.S. $ 481$ 1,295$ 5 $ - $ - $ - $ 15 $ 1,796 Non-U.S. - - 364 68 37 3 - 472 Residential mortgaged-backed securities $ 481$ 1,295$ 369$ 68$ 37$ 3 $ 15 $ 2,268 Other mortgaged-backed securities U.S. $ 6 $ - $ 18 $ - $ - $ 1 $ 2 $ 27 Non-U.S. - - 9 - - - - 9



Other mortgaged-backed securities $ 6 $ - $

27 $ - $ - $ 1 $ 2 $ 36 Total $ 487$ 1,295$ 715$ 255$ 177$ 12$ 501$ 3,442 % of Total 14 % 38 % 21 % 7 % 5 % - % 15 % 100 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

(2) GNMA represents the Government National Mortgage Association. The GNMA, or

Ginnie Mae as it is commonly known, is a wholly owned U.S. government

corporation within the Department of Housing and Urban Development which

guarantees mortgage loans of qualifying first-time home buyers and low-income

borrowers.

(3) GSEs, or government sponsored enterprises, includes securities that are

issued by U.S. government agencies, such as Freddie Mac and Fannie Mae.

Residential mortgage-backed securities includes U.S. residential mortgage-backed securities, which generally have a low risk of default and carry the implicit backing of the U.S. government. The issuers of these securities are U.S. government agencies or GSEs, which set standards on the mortgages before accepting them into the program. Although these U.S. government backed securities do not carry a formal rating, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues. They are considered prime mortgages and the major risk is uncertainty of the timing of prepayments. While there have been market concerns regarding sub-prime mortgages, the Company did not have direct exposure to these types of securities in its own investment portfolio at December 31, 2013, other than $17 million of investments in distressed asset vehicles (included in Other invested assets). At December 31, 2013, the Company's U.S. residential mortgage-backed securities included approximately $3 million (less than 1% of U.S. residential mortgage-backed securities) of collateralized mortgage obligations, where the Company deemed the entry point and price of the investment to be attractive. 128



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Other mortgaged-backed securities includes U.S. and non-U.S. commercial mortgage-backed securities.

Short-term investments consisted of non-U.S. government obligations and foreign corporate bonds. At December 31, 2013, the fair value and credit ratings of short-term investments were as follows (in millions of U.S. dollars):

Non-U.S. Total Fair Credit Rating(1) December 31, 2013 Government Corporate Value AAA AA A BBB Country Australia $ 8 $ - $ 8 $ 8 $ - $ - $ - Canada 2 2 4 2 - - 2 All Other 2 - 2 1 - 1 - Total $ 12 $ 2 $ 14 $ 11 $ - $ 1$ 2 % of Total 86 % 14 % 100 % 79 % - % 7 % 14 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). Investment grade reflects a rating of BBB- or above.

Equities are comprised of publicly traded common stocks, public exchange traded funds (ETFs), real estate investment trusts (REITs) and funds holding fixed income securities. The fair value of equities (including equities held in ETFs, REITs and funds holding fixed income securities) at December 31, 2013 were as follows (in millions of U.S. dollars): Percentage to Total Fair Value December 31, 2013 Fair Value of Equities Sector

Real estate investment trusts $ 176

17 % Energy 160 16 Insurance 144 14 Finance 139 14 Consumer noncyclical 109 11 Communications 73 7 Technology 62 6 Industrials 48 5 All Other 101 10 Total $ 1,012 100 %

Mutual funds and exchange traded funds Funds holding fixed income securities 185 Funds and ETFs holding equities 24 Total equities $ 1,221



At December 31, 2013, the Company's "insurance sector" equities included an investment of $121 million in Essent Group Ltd. (Essent), the U.S. mortgage guaranty insurance company that conducted an initial public offering in the fourth quarter of 2013. The Company has agreed, subject to certain exceptions, not to dispose of or hedge any of the common shares of Essent, prior to April 28, 2014.

At December 31, 2013, U.S. issuers represented 61% of the publicly traded common stocks and ETFs. At December 31, 2013, the ten largest common stocks accounted for 28% of equities (excluding equities held in ETFs and funds holding fixed income securities). At December 31, 2013, other than the Company's investment in Essent, no single common stock issuer accounted for more than 3% of total equities (excluding equities held in 129



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ETFs and funds holding fixed income securities) or more than 1% of the Company's total investments and cash and cash equivalents. At December 31, 2013, approximately 96% (or $177 million) of the funds holding fixed income securities were emerging markets funds. At December 31, 2013, the Company held less than $1 million of equities (excluding equities held in ETFs and funds holding fixed income securities) issued by finance sector institutions based in peripheral EU countries (Portugal, Ireland, Italy, Greece and Spain).



Maturity Distribution

The distribution of fixed maturities and short-term investments at December 31, 2013, by contractual maturity date, was as follows (in millions of U.S. dollars): Fair December 31, 2013 Cost Value One year or less $ 374$ 378 More than one year through five years 4,915 5,057 More than five years through ten years 3,920 3,962 More than ten years 724 768 Subtotal 9,933 10,165 Mortgage/asset-backed securities 3,457 3,442 Total $ 13,390$ 13,607



Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

Other Invested Assets The Company's other invested assets consisted primarily of investments in non-publicly traded companies, asset-backed securities, notes and loan receivables, note securitizations, annuities and residuals and other specialty asset classes. These assets, together with the Company's derivative financial instruments that were in a net unrealized gain or loss position are reported within Other invested assets in the Company's Consolidated Balance Sheets. The fair value and notional value (if applicable) of other invested assets at December 31, 2013 were as follows (in millions of U.S. dollars): Carrying Notional Value December 31, 2013 Value(1) of Derivatives Strategic investments $ 187 $ n/a Asset-backed securities (including annuities and residuals) 49 n/a Notes and loan receivables and notes securitizations 41 n/a Total return swaps (1 ) 32 Interest rate swaps (2) - 203 Credit default swaps (protection purchased) - 14 Insurance-linked securities (3) - 169 Futures contracts 41



3,266

Foreign exchange forward contracts (7 )



1,957

Foreign currency option contracts (1 ) 88 TBAs (1 ) 184 Other 13 n/a Total $ 321 n/a: Not applicable



(1) Included in Other invested assets are investments that are accounted for

using the cost method of accounting, equity method of accounting and fair

value accounting. 130



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Table of Contents (2) The Company enters into interest rate swaps to mitigate notional exposures on

certain total return swaps and certain fixed maturities. Only the notional

value of interest rate swaps on fixed maturities is presented separately in

the table.

(3) Insurance-linked securities include a longevity swap for which the notional

amount is not reflective of the overall potential exposure of the swap. As

such, the Company has included the probable maximum loss under the swap

within the net notional exposure as an approximation of the notional amount.

At December 31, 2013, the Company's strategic investments included $187 million of investments classified in other invested assets. These strategic investments include investments in non-publicly traded companies, private placement equity and bond investments, notes and loan receivables, notes securitizations and other specialty asset classes, and the investments in distressed asset vehicles comprised of sub-prime mortgages, which were discussed above in the residential mortgaged-backed securities category of Investments-Trading Securities. In addition to the Company's strategic investments that are classified in other invested assets, strategic investments of $161 million are recorded in equities and other assets at December 31, 2013. At December 31, 2013, the Company's principal finance activities included $112 million of investments classified in Other invested assets, which were comprised primarily of asset-backed securities, notes and loan receivables, notes securitizations, annuities and residuals and private placement equity investments, which were partially offset by the combined fair value of total return and interest rate swaps related to principal finance activities. For total return swaps within the principal finance portfolio, the Company uses internal valuation models to estimate the fair value of these derivatives and develops assumptions that require significant judgment, such as the timing of future cash flows, credit spreads and the general level of interest rates. For interest rate swaps, the Company uses externally modeled quoted prices that use observable market inputs. At December 31, 2013, all of the Company's principal finance total return and interest rate swap portfolio was related to tax advantaged real estate backed transactions. The Company also utilizes credit default swaps to mitigate the risk associated with certain of its underwriting obligations, most notably in the credit/surety line, to replicate investment positions or to manage market exposures and to reduce the credit risk for specific fixed maturities in its investment portfolio. The counterparties to the Company's credit default swaps are all investment grade financial institutions rated A- or better by Standard & Poor's at December 31, 2013. The Company uses externally modeled quoted prices that use observable market inputs to estimate the fair value of these swaps. The Company has entered into various weather derivatives and longevity total return swaps for which the underlying risks reference parametric weather risks and longevity risks, respectively. The Company uses internal valuation models to estimate the fair value of these derivatives and develops assumptions that require significant judgment, except for exchange traded weather derivatives. In determining the fair value of exchange traded weather derivatives, the Company uses quoted market prices.



The Company uses exchange traded treasury note futures for the purposes of managing portfolio duration. The Company also uses equity futures to replicate equity investment positions.

The Company utilizes foreign exchange forward contracts and foreign currency option contracts as part of its overall currency risk management and investment strategies. The Company utilizes TBAs as part of its overall investment strategy and to enhance investment performance. TBAs represent commitments to purchase future issuances of U.S. government agency mortgage backed securities. For the period between purchase of a TBA and issuance of the underlying security, the Company's position is accounted for as a derivative. The Company's policy is to maintain designated cash balances at least equal to the amount of outstanding TBA purchases. 131



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At December 31, 2013, the Company's other invested assets did not include any exposure to peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain) and included direct exposure to mutual fund investments in other EU countries of less than $3 million. The counterparties to the Company's credit default swaps, foreign exchange forward contracts and foreign currency option contracts include European finance sector institutions rated A- or better by Standard & Poor's and the Company manages its exposure to individual institutions. The Company also has exposure to the euro related to the utilization of foreign exchange forward contracts and other derivative financial instruments in its hedging strategy (see Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk in Item 7A of Part II of this report).



Funds Held - Directly Managed

Following Paris Re's acquisition of substantially all of the reinsurance operations of ColisÉe Re (previously known as AXA RE), a subsidiary of AXA SA (AXA), in 2006, Paris Re and its subsidiaries entered into an issuance agreement and a quota share retrocession agreement to assume business written by ColisÉe Re from January 1, 2006 to September 30, 2007 as well as the in-force business at December 31, 2005. The agreements provided that the premium related to the transferred business was retained by ColisÉe Re and credited to a funds held account. The assets underlying the funds held - directly managed account are maintained by ColisÉe Re in a segregated investment portfolio and managed by the Company. The segregated investment portfolio underlying the funds held - directly managed account is carried at fair value. Realized and unrealized investment gains and losses and net investment income related to the underlying investment portfolio in the funds held - directly managed account inure to the benefit of the Company. The composition of the investments underlying the funds held - directly managed account at December 31, 2013 is discussed below. See the discussion in Counterparty Credit Risk in Item 7A of Part II of this report. Substantially all of the investments in the segregated investment portfolio underlying the funds held - directly managed account are carried at fair value. Realized and unrealized investment gains and losses and net investment income related to this account inure to the benefit of the Company. The Company elects the fair value option for all of the fixed maturities, short-term investments and certain other invested assets in the segregated investment portfolio underlying this account, and accordingly, all changes in fair value are recorded in net realized and unrealized investment gains and losses in the Consolidated Statements of Operations. At December 31, 2013, approximately 98% of the fixed income investments underlying the funds held - directly managed account were publicly traded and substantially all (more than 99%) were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent).



The average credit quality, the average yield to maturity and the expected average duration of the fixed maturities, short-term investments and cash and cash equivalents underlying the funds held - directly managed account at December 31, 2013 and 2012 were as follows:

2013 2012 Average credit quality AA AA Average yield to maturity 1.2 % 1.0 % Expected average duration 2.9 years 3.0 years The modest increase in the average yield to maturity on fixed maturities, short-term investments and cash and cash equivalents underlying the funds held - directly managed account at December 31, 2013 compared to December 31, 2012, was primarily due to increases in U.S. and European risk-free interest rates. The average credit quality and the expected average duration of the fixed maturities underlying the funds held - directly managed account at December 31, 2013 were comparable to December 31, 2012. 132



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The cost, fair value and credit rating of the investments underlying the funds held - directly managed account at December 31, 2013 and 2012 were as follows (in millions of U.S. dollars): Fair Credit Rating(2) December 31, 2013 Cost (1) Value AAA AA A BBB Fixed maturities U.S. government $ 107$ 108 $ - $ 108 $ - $ - U.S. government sponsored enterprises 47 50 - 50 - - Non-U.S. sovereign government, supranational and government related 132 137 44 69 24 - Corporate 238 249 23 89 100 37 Fixed maturities 524 544 67 316 124 37 Short-term investments 2 2 2 - - - Total fixed maturities and short-term investments 526 546 $ 69$ 316$ 124$ 37 Other invested assets 28 15 Total $ 554$ 561 % of Total fixed maturities and short-term investments 13 % 58 % 22 % 7 % Fair Credit Rating(2) December 31, 2012 Cost (1) Value AAA AA A BBB Fixed maturities U.S. government $ 126$ 129 $ - $ 129 $ - $ - U.S. government sponsored enterprises 85 90 - 90 - - Non-U.S. sovereign government, supranational and government related 218 234 57 130 47 - Corporate 342 362 44 123 148 47 Fixed maturities 771 815 $ 101$ 472$ 195$ 47 Other invested assets 27 18 Total $ 798$ 833 % of Fixed maturities 12 % 58 % 24 % 6 %



(1) Cost is amortized cost for fixed maturities and short-term investments.

(2) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

The decrease in the fair value of the investment portfolio underlying the funds held - directly managed account from $833 million at December 31, 2012 to $561 million at December 31, 2013 was primarily related to the run-off of the underlying loss reserves associated with this account and increases in U.S. and European risk-free interest rates.



The U.S. government category includes U.S. treasuries which are not rated, however, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues.

The U.S. government sponsored enterprises (GSEs) category includes securities that carry the implicit backing of the U.S. government and securities issued by U.S. government agencies (such as Freddie Mac and Fannie Mae). At December 31, 2013, 83% of this category was rated AA with the remaining 17%, although not specifically rated, generally considered to have a credit quality equivalent to AA+ corporate issues. 133



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The non-U.S. sovereign government, supranational and government related category includes obligations of non-U.S. sovereign governments, political subdivisions, agencies and supranational debt. The fair value and credit ratings of non-U.S. sovereign government, supranational and government related obligations underlying the funds held - directly managed account at December 31, 2013 were as follows (in millions of U.S. dollars): Non-U.S. Non-U.S. Total Credit Rating(1) Sovereign Supranational Government Fair December 31, 2013 Government Debt Related Value AAA AA A Non-European Union Canada $ - $ - $ 74 $ 74$ 21$ 29$ 24 All Other - 4 - 4 4 - - Total Non-European Union $ - $ 4 $ 74 $ 78$ 25$ 29$ 24 European Union France $ 9 $ - $ 24 $ 33 $ - $ 33 $ - All Other 3 22 1 26 19 7 - Total European Union $ 12 $ 22 $ 25 $ 59$ 19$ 40 $ - Total $ 12 $ 26 $ 99 $ 137$ 44$ 69$ 24 % of Total 9 % 19 % 72 % 100 % 32 % 50 % 18 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

At December 31, 2013, the investments underlying the funds held - directly managed account included less than $1 million of securities issued by peripheral European Union (EU) sovereign governments (Portugal, Italy, Ireland, Greece and Spain). Corporate bonds underlying the funds held - directly managed account are comprised of obligations of U.S. and foreign corporations. The fair value of corporate bonds issued by U.S. and foreign corporations underlying funds held - directly managed account by economic sector at December 31, 2013 were as follows (in millions of U.S. dollars): Percentage to Total Fair Total Value of Fair Corporate December 31, 2013 U.S. Foreign Value Bonds Sector Finance $ 14$ 65$ 79 32 % Consumer noncyclical 42 9 51 21 Energy 6 29 35 14 Utilities 6 16 22 9 Basic materials 7 9 16 6 Communications 5 9 14 6 Government guaranteed corporate debt - 10 10 4 Consumer cyclical 8 1 9 3 All Other 12 1 13 5 Total $ 100$ 149$ 249 100 % % of Total 40 % 60 % 100 %



At December 31, 2013, other than the U.S., France, the U.K. and the Netherlands, which accounted for 40%, 14%, 12% and 11% respectively, no other country accounted for more than 10% of the Company's corporate bonds underlying the funds held - directly managed account.

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At December 31, 2013, the ten largest issuers accounted for 32% of the corporate bonds underlying the funds held - directly managed account and no single issuer accounted for more than 4% of corporate bonds underlying the funds held - directly managed account (or more than 2% of the investments and cash underlying the funds held - directly managed account). At December 31, 2013, all of the finance sector corporate bonds held were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent) and 98% were rated A- or better. At December 31, 2013, the fair value of corporate bonds underlying the funds held - directly managed account that were issued by companies in the European Union were as follows (in millions of U.S. dollars): Government Finance Non-Finance Guaranteed Sector Sector Total Corporate Corporate Corporate Fair December 31, 2013 Debt Bonds Bonds Value European Union France $ - $ 16 $ 19 $ 35 United Kingdom 3 15 12 30 Netherlands - 11 16 27 Germany 7 - 2 9 All Other - 8 6 14 Total $ 10 $ 50 $ 55 $ 115 % of Total 9 % 43 % 48 % 100 % At December 31, 2013, corporate bonds underlying the funds held - directly managed account included less than $9 million of finance sector corporate bonds issued by companies in peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain).



Other invested assets underlying the funds held - directly managed account consist primarily of real estate fund investments.

Maturity Distribution

The distribution of fixed maturities and short-term investments underlying the funds held - directly managed account at December 31, 2013, by contractual maturity date was as follows (in millions of U.S. dollars):

Fair December 31, 2013 Cost Value One year or less $ 89$ 89 More than one year through five years 317 331 More than five years through ten years 103 109 More than ten years 17 17 Total $ 526$ 546



Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

European Exposures

As discussed in Item 1 of Part I of this report, the Company conducts its operations in various countries and in a variety of non-U.S. denominated currencies. A significant portion of the Company's reinsurance business is conducted with cedants in Europe, with the collection of premiums and the payment of claims denominated in the euro. As described above, the currency composition of the Company's liability funds generally matches the underlying net reinsurance liabilities to protect against changes in foreign exchange rates. Accordingly, the

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Company's liability funds that are held to match net reinsurance liabilities that are denominated in the euro, expose the Company's investment portfolio and the investments underlying the funds held - directly managed account to bonds that are denominated in the euro that are issued by European sovereign governments and government agencies, corporate bonds that are issued by companies in Europe (including those that are also guaranteed by a European sovereign government) and equities issued by companies in Europe. As a result of the uncertainties related to European sovereign government debt exposures, and uncertainties surrounding Europe in general, the Company implemented additional risk management guidelines to reduce and mitigate potential risks arising from these exposures in its investment portfolio and in the investments underlying the funds held - directly managed account. These guidelines reflect the Company's response to current conditions and the guidelines may change as the dynamics of the underlying conditions and uncertainties change. The Company's current guidelines include, but are not limited to, the following:



Since the beginning of 2010 the Company has eliminated substantially all

of its investment exposure to bonds issued by European sovereign governments in the peripheral countries (Portugal, Italy, Ireland, Greece and Spain); and



During the second half of 2011, the Company focused its European sovereign

government exposure to five highly-rated countries.

These five countries, Germany, France, Netherlands, Belgium, and Austria are rated AAA, AA, AA+, AA and AA+ by Standard & Poor's.

The Company's exposures to European sovereign governments and other European related investment risks are discussed above within each category of the Company's investment portfolio and the investments underlying the funds held - directly managed account. In addition, the Company's other investment and derivative exposures to European counterparties are discussed in Other Invested Assets above. See Risk Factors in Item 1A of Part I of this report for further discussion on the Company's exposure to the European sovereign debt crisis.



Funds Held by Reinsured Companies (Cedants)

In addition to the funds held - directly managed account described above, the Company writes certain business on a funds held basis. The following discussion excludes the funds held - directly managed account. Under funds held contractual arrangements, the cedant retains the net funds that would have otherwise been remitted to the Company and credits the net fund balance with investment income. At December 31, 2013 and 2012, the Company recorded $843 million and $805 million, respectively, of funds held assets in its Consolidated Balance Sheets. At December 31, 2013, the five largest cedants represented 60% of the funds held balance. Approximately 79% of the funds held balance at December 31, 2013 related to contracts that earned investment income based upon a predetermined interest rate, either fixed contractually at the inception of the contract or based upon a recognized market index (e.g., LIBOR). Interest rates ranged from 1.8% to 4.3% for the year ended December 31, 2013. Under these contractual arrangements, there are no specific assets linked to the funds held assets, and the Company is only exposed to the credit risk of the cedant. These arrangements include three of the five cedants with the largest funds held assets, which represented 43% of the Company's total funds held balance. With respect to the remaining 21% of the funds held balance at December 31, 2013, the Company receives an investment return based upon either the results of a pool of assets held by the cedant, or the investment return earned by the cedant on its entire investment portfolio. This portion of the Company's funds held assets at December 31, 2013 included two of the five cedants with the largest funds held assets, which represented 17% of the Company's total funds held balance. The Company does not legally own or directly control the investments underlying its funds held assets and only has recourse to the cedant for the receivable balances and no claim to the underlying securities that support the balances. Decisions as to purchases and sales of assets underlying the 136



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funds held balances are made by the cedant; in some circumstances, investment guidelines regarding the minimum credit quality of the underlying assets may be agreed upon between the cedant and the Company as part of the reinsurance agreement, or the Company may participate in an investment oversight committee regarding the investment of the net funds, but investment decisions are not otherwise influenced by the Company. Within this portion of the funds held assets, the Company has several annuity treaties which are structured so that the return on the funds held balances is tied to the performance of an underlying group of assets held by the cedant, including fluctuations in the market value of the underlying assets. One such treaty is a retrocessional agreement under which the Company receives more limited data than what is generally received under a direct reinsurance agreement. In these arrangements, the objective of the reinsurance agreement is to provide for the covered longevity risk and to earn a net investment return on an underlying pool of assets greater than is contractually due to the annuity holders. While the Company is also exposed to the creditworthiness of the cedant, the Company's credit risk in some jurisdictions is mitigated by a mandatory right of offset of amounts payable by the Company to a cedant against amounts due to the Company. In certain other jurisdictions the Company is able to mitigate this risk, depending on the nature of the funds held arrangements, to the extent that the Company has the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by the Company to cedants for losses payable and other amounts contractually due. The Company also has non-life treaties in which the investment performance of the net funds held asset corresponds to the interest income on the assets held by the cedant; however, the Company is not directly exposed to the underlying credit risk of these investments, as they serve only as collateral for the Company's receivables. That is, the amount owed to the Company is unaffected by changes in the market value of the investments underlying the funds held.



Unpaid Losses and Loss Expenses

The Company establishes loss reserves to cover the estimated liability for the payment of all losses and loss expenses incurred with respect to premiums earned on the contracts that the Company writes. Loss reserves do not represent an exact calculation of the liability. Estimates of ultimate liabilities are contingent on many future events and the eventual outcome of these events may be different from the assumptions underlying the reserve estimates. The Company believes that the recorded unpaid losses and loss expenses represent Management's best estimate of the cost to settle the ultimate liabilities based on information available at December 31, 2013. The Non-life reserves for unpaid losses and loss expenses at December 31, 2013 and 2012 include reserves guaranteed by ColisÉe Re (see Business-Reserves in Item 1 of Part I and Note 8 to Consolidated Financial Statements included in Item 8 of Part II of this report for a discussion of the Reserve Agreement). At December 31, 2013 and 2012, the Company recorded gross and net Non-life reserves for unpaid losses and loss expenses as follows (in millions of U.S. dollars): 2013 2012



Gross Non-life reserves for unpaid losses and loss expenses $ 10,646$ 10,709

Net Non-life reserves for unpaid losses and loss expenses 10,379

10,418

Net reserves guaranteed by ColisÉe Re 727



857

See Business-Reserves-Non-life Reserves in Item 1 of Part I of this report for a reconciliation of the net Non-life reserves for unpaid losses and loss expenses for the years ended December 31, 2013, 2012 and 2011 and a discussion of the impact of foreign exchange on unpaid losses and loss expenses. See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits and Review of Net Income (Loss)-Results by Segment above for a discussion of losses and loss expenses. 137



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Policy Benefits for Life and Annuity Contracts

At December 31, 2013 and 2012, the Company recorded gross and net policy benefits for life and annuity contracts as follows (in millions of U.S. dollars):

2013



2012

Gross policy benefits for life and annuity contracts $ 1,974$ 1,813

Net policy benefits for life and annuity contracts 1,967 1,793

See Business-Reserves in Item 1 of Part I of this report for a reconciliation of the net policy benefits for life and annuity contracts for the years ended December 31, 2013, 2012 and 2011.

See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits and Results by Segment above for a discussion of life policy benefits.



Reinsurance Recoverable on Paid and Unpaid Losses

The Company has exposure to credit risk related to reinsurance recoverable on paid and unpaid losses. See Note 9 to Consolidated Financial Statements in Item 8 of Part II of this report and Quantitative and Qualitative Disclosures about Market Risk-Counterparty Credit Risk in Item 7A of Part II of this report for a discussion of the Company's risk related to reinsurance recoverable on paid and unpaid losses and the Company's process to evaluate the financial condition of its reinsurers. At December 31, 2013 and 2012, the Company recorded $274 million and $312 million, respectively, of reinsurance recoverable on paid and unpaid losses in its Consolidated Balance Sheets. At December 31, 2013, the distribution of the Company's reinsurance recoverable on paid and unpaid losses categorized by the reinsurer's Standard & Poor's rating was as follows: % of total reinsurance recoverable on paid and Rating Category unpaid losses AA or better 10 % A 62 Less than A/Unrated/Other 28 Total 100 % At December 31, 2013, 72% of the Company's reinsurance recoverable on paid and unpaid losses were due from reinsurers with A- or better rating from Standard & Poor's, compared to 84% at December 31, 2012. 138



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Contractual Obligations and Commitments

In the normal course of its business, the Company is a party to a variety of contractual obligations as summarized below. These contractual obligations are considered by the Company when assessing its liquidity requirements and the Company is confident in its ability to meet all of its obligations. Contractual obligations at December 31, 2013 were as follows (in millions of U.S. dollars): Total < 1 year 1-3 years 3-5 years > 5 years

Contractual obligations: Operating leases 113.9 30.1 55.4 28.0 0.4 Other operating agreements 14.7 7.6 6.7 0.4 - Other invested assets (1) 161.8 67.3 82.1 12.4 - Unpaid losses and loss expenses (2) 10,646.3 3,410.1 2,969.5 1,477.4 2,789.3 Policy benefits for life and annuity contracts (3) 2,937.0 248.5 655.1 278.7 1,754.7 Deposit liabilities (3) 394.7 84.3 58.9 40.1 211.4 Employment agreements (4) 32.7 20.9 10.8 1.0 - Other long-term liabilities: Senior Notes-principal (5) 750 - - - 750 Senior Notes-interest n/a 44.7 89.4 80.8 27.5 per annum Capital Efficient Notes-principal (6) 63.4 - - - 63.4 Capital Efficient Notes-interest n/a 4.1 8.2 8.2 4.1 per annum Series D cumulative preferred shares-principal (7) 230 - - - 230 Series D cumulative preferred shares-dividends n/a 15.0 29.9 29.9 15.0 per annum Series E cumulative preferred shares-principal (7) 374 - - - 374 Series E cumulative preferred shares-dividends n/a 27.1 54.2 54.2 27.1 per annum Series F non-cumulative preferred shares-principal (8) 250 - - - 250 Series F non-cumulative preferred shares-dividends n/a 14.7 29.4 29.4 14.7 per annum n/a: Not applicable



(1) The amounts above for other invested assets represent the Company's expected

timing of funding capital commitments related to its strategic investments.

(2) The Company's unpaid losses and loss expenses represent Management's best

estimate of the cost to settle the ultimate liabilities based on information

available at December 31, 2013, and are not fixed amounts payable pursuant to

contractual commitments. The timing and amounts of actual loss payments

related to these reserves might vary significantly from the Company's current

estimate of the expected timing and amounts of loss payments based on many

factors, including large individual losses as well as general market

conditions.

(3) Policy benefits for life and annuity contracts and deposit liabilities

recorded in the Company's Consolidated Balance Sheet at December 31, 2013 of

$1,974 million and $329 million, respectively, are computed on a discounted

basis, whereas the expected payments by period in the table above are the

estimated payments at a future time and do not reflect a discount of the

amount payable.

(4) In 2010, as part of the Company's integration of Paris Re, the Company

announced a voluntary termination plan available to certain eligible

employees in France. In April 2013, the Company announced the restructuring

of its business support operations into a single integrated worldwide support

platform and changes to the structure of its Global Non-life Operations. The

restructuring includes involuntary and voluntary employee termination plans

in certain jurisdictions (collectively, termination plans). The continuing

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the employee remains with the Company and provides service. Following their

departure from the Company, employees participating in the termination plans

continue to receive pre-determined payments related to employment benefits,

which were accrued for by the Company under the terms of the termination

plans during the years ended December 31, 2010 and 2013, respectively. The

amounts in the table above reflect the Company's remaining obligations to the

eligible employees under all of these plans that will be paid through 2018.

For further details related to the restructuring in 2013, see Overview above.

(5) PartnerRe Finance A LLC and PartnerRe Finance B LLC, the issuers of the

Senior Notes, do not meet consolidation requirements under U.S. GAAP.

Accordingly, the Company shows the related intercompany debt of $750 million

in its Consolidated Balance Sheets at December 31, 2013 and 2012. The 6.875%

Senior Notes with aggregate principal outstanding of $250 million mature on

June 1, 2018.

(6) PartnerRe Finance II Inc., the issuer of the CENts, does not meet

consolidation requirements under U.S. GAAP. Accordingly, the Company shows

the related intercompany debt of $71 million in its Consolidated Balance

Sheets at December 31, 2013 and 2012.

(7) The Company's Series D and Series E preferred shares are cumulative,

perpetual and have no mandatory redemption requirement, but may be redeemed

at our option under certain circumstances.

(8) The Company's Series F preferred shares are non-cumulative, perpetual and

have no mandatory redemption requirement, but may be redeemed at our option

under certain circumstances.

The Contractual Obligations and Commitments table above does not include an estimate of the period of cash settlement of its tax liabilities with the respective taxing authorities given the Company cannot make a reasonably reliable estimate of the timing of cash settlements.

Due to the limited nature of the information presented above, it should not be considered indicative of the Company's liquidity or capital needs. See Liquidity below. During 2012, the Company committed to a $100 million participation in a 10 year structured letter of credit facility issued by a high credit quality international bank, which has a final maturity of December 29, 2020. At December 31, 2013, the letter of credit facility has not been drawn down and it can only be drawn down in the event of certain specific scenarios, which the Company considers remote. Unless canceled by the bank, the credit facility automatically extends for one year, each year until maturity.



Shareholders' Equity and Capital Resources Management

Shareholders' equity attributable to PartnerRe Ltd. common shareholders was $6.7 billion at December 31, 2013, a 3% decrease compared to $6.9 billion at December 31, 2012. The major factors contributing to the decrease in shareholders' equity during the year ended December 31, 2013 were:

a net decrease of $616 million, due to the repurchase of common shares of

$695 million under the Company's share repurchase program, partially

offset by the issuance of common shares under the Company's employee

equity plans of $79 million;



dividend payments of $200 million related to both the Company's common and

preferred shares; and a net decrease of $48 million related to the redemption of Series C



preferred shares of $290 million, which was partially offset by proceeds

of $242 million, after underwriting discounts, commissions and other expenses, related to the issuance of the Series F preferred shares (see Note 11 to the Consolidated Financial Statements included in Item 8 of



Part II of this report and Contractual Obligations and Commitments above);

partially offset by



comprehensive income of $641 million, which was primarily related to net

income of $664 million and was partially offset by the change in the currency translation adjustment of $32 million.



See Results of Operations and Review of Net Income (Loss) above for a discussion of the Company's net income for the year ended December 31, 2013.

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As part of its long-term strategy, the Company will continue to actively manage capital resources to support its operations throughout the reinsurance cycle and for the benefit of its shareholders, subject to the ability to maintain strong ratings from the major rating agencies and the unquestioned ability to pay claims as they arise. Generally, the Company seeks to increase its capital when its current capital position is not sufficient to support the volume of attractive business opportunities available. Conversely, the Company will seek to reduce its capital, through the payment of dividends on its common shares or share repurchases, when available business opportunities are insufficient or unattractive to fully utilize the Company's capital at adequate returns. The Company may also seek to reduce or restructure its capital through the repayment or purchase of debt obligations, or increase or restructure its capital through the issuance of debt, when opportunities arise. Management uses certain key measures to evaluate its financial performance and the overall growth in value generated for the Company's common shareholders. As described in Key Financial Measures above, the Company's long-term objective is to manage a portfolio of diversified risks that will create total shareholder value and the Company measures its success in achieving its long-term objective by using compound annual growth in Diluted Tangible Book Value per Share plus dividends. Management believes this measure aligns the Company's stated long-term objective with the measure most investors use to evaluate total shareholder value creation given that it focuses on the tangible value of total shareholder returns, excluding the impact of goodwill and intangibles. Growth in Diluted Tangible Book Value per Share is impacted by the Company's net income or loss, capital resources management and external factors such as foreign exchange, interest rates, credit spreads and equity markets, which can drive changes in realized and unrealized gains or losses on its investment portfolio. The growth in Diluted Tangible Book Value per Share plus dividends was 11.2% during the year ended December 31, 2013. This growth was driven by net income attributable to PartnerRe Ltd., dividends on the common shares and the accretive impact of share repurchases, which were partially offset by realized and unrealized losses from the Company's investment portfolio that were attributable to increases in risk-free rates. The 5-year compound annual growth in Diluted Tangible Book Value per Share plus dividends was in excess of 14%. Given the Company's profitability in any particular quarterly or annual period can be significantly affected by the level of large catastrophic losses, Management assesses this long-term objective over the reinsurance cycle as the Company's performance during any particular quarterly or annual period is not necessarily indicative of its performance over the longer-term reinsurance cycle. The presentation of Diluted Tangible Book Value per Share and growth in Diluted Tangible Book Value per Share plus dividends are non-GAAP financial measures within the meaning of Regulation G and, accordingly, the definition, the calculation and a reconciliation to the most directly comparable GAAP financial measure is provided for each measure in Key Financial Measures above.



The capital structure of the Company at December 31, 2013 and 2012 was as follows (in millions of U.S. dollars):

2013 2012 Capital Structure: Senior notes (1) $ 750 10 % $ 750 10 % Capital efficient notes (2) 63 1 63 1 Preferred shares, aggregate liquidation value 854 11 894 11 Common shareholders' equity attributable to PartnerRe Ltd. 5,856 78 6,040 78 Total Capital $ 7,523 100 % $ 7,747 100 %



(1) PartnerRe Finance A LLC and PartnerRe Finance B LLC, the issuers of the

Senior Notes, do not meet consolidation requirements under U.S. GAAP.

Accordingly, the Company shows the related intercompany debt of $750 million

in its Consolidated Balance Sheets at December 31, 2013 and 2012. 141

-------------------------------------------------------------------------------- Table of Contents (2) PartnerRe Finance II Inc., the issuer of the CENts, does not meet



consolidation requirements under U.S. GAAP. Accordingly, the Company shows

the related intercompany debt of $71 million in its Consolidated Balance

Sheets at December 31, 2013 and 2012.

The decrease in total capital during the year ended December 31, 2013 was related to the same factors describing the decrease in shareholders' equity above.

Indebtedness Senior Notes In March 2010, PartnerRe Finance B LLC (PartnerRe Finance B), an indirect 100% owned subsidiary of the parent company, issued $500 million aggregate principal amount of 5.500% Senior Notes (2010 Senior Notes, or collectively with the 2008 Senior Notes defined below referred to as Senior Notes). The 2010 Senior Notes will mature on June 1, 2020 and may be redeemed at the option of the issuer, in whole or in part, at any time. Interest on the 2010 Senior Notes is payable semi-annually and commenced on June 1, 2010 at an annual fixed rate of 5.500%, and cannot be deferred. The 2010 Senior Notes are ranked as senior unsecured obligations of PartnerRe Finance B. The parent company has fully and unconditionally guaranteed all obligations of PartnerRe Finance B under the 2010 Senior Notes. The parent company's obligations under this guarantee are senior and unsecured and rank equally with all other senior unsecured indebtedness of the parent company. Contemporaneously, PartnerRe U.S. Holdings, a wholly-owned subsidiary of the parent company, issued a 5.500% promissory note, with a principal amount of $500 million to PartnerRe Finance B. Under the terms of the promissory note, PartnerRe U.S. Holdings promises to pay to PartnerRe Finance B the principal amount on June 1, 2020, unless previously paid. Interest on the promissory note commenced on June 1, 2010 and is payable semi-annually at an annual fixed rate of 5.500%, and cannot be deferred.



For each of the years ended December 31, 2013, 2012 and 2011, the Company incurred interest expense and paid interest of $27.5 million in relation to the 2010 Senior Notes issued by PartnerRe Finance B.

In May 2008, PartnerRe Finance A LLC (PartnerRe Finance A), an indirect 100% owned subsidiary of the parent company, issued $250 million aggregate principal amount of 6.875% Senior Notes (2008 Senior Notes, or collectively with 2010 Senior Notes referred to as Senior Notes). The 2008 Senior Notes will mature on June 1, 2018 and may be redeemed at the option of the issuer, in whole or in part, at any time. Interest on the 2008 Senior Notes is payable semi-annually and commenced on December 1, 2008 at an annual fixed rate of 6.875%, and cannot be deferred. The 2008 Senior Notes are ranked as senior unsecured obligations of PartnerRe Finance A. The parent company has fully and unconditionally guaranteed all obligations of PartnerRe Finance A under the 2008 Senior Notes. The parent company's obligations under this guarantee are senior and unsecured and rank equally with all other senior unsecured indebtedness of the parent company. Contemporaneously, PartnerRe U.S. Holdings issued a 6.875% promissory note, with a principal amount of $250 million to PartnerRe Finance A. Under the terms of the promissory note, PartnerRe U.S. Holdings promises to pay to PartnerRe Finance A the principal amount on June 1, 2018, unless previously paid. Interest on the promissory note is payable semi-annually and commenced on December 1, 2008 at an annual fixed rate of 6.875%, and cannot be deferred.



For each of the years ended December 31, 2013, 2012 and 2011, the Company incurred interest expense and paid interest of $17.2 million in relation to the 2008 Senior Notes issued by PartnerRe Finance A.

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Capital Efficient Notes (CENts)

In November 2006, PartnerRe Finance II Inc. (PartnerRe Finance II), an indirect 100% owned subsidiary of the parent company, issued $250 million aggregate principal amount of 6.440% Fixed-to-Floating Rate Junior Subordinated CENts. The CENts will mature on December 1, 2066 and may be redeemed at the option of the issuer, in whole or in part, after December 1, 2016 or earlier upon occurrence of specific rating agency or tax events. Interest on the CENts is payable semi-annually and commenced on June 1, 2007 through to December 1, 2016 at an annual fixed rate of 6.440% and will be payable quarterly thereafter until maturity at an annual rate of 3-month LIBOR plus a margin equal to 2.325%. PartnerRe Finance II may elect to defer one or more interest payments for up to ten years, although interest will continue to accrue and compound at the rate of interest applicable to the CENts. The CENts are ranked as junior subordinated unsecured obligations of PartnerRe Finance II. The parent company has fully and unconditionally guaranteed on a subordinated basis all obligations of PartnerRe Finance II under the CENts. The parent company's obligations under this guarantee are unsecured and rank junior in priority of payments to the parent company's Senior Notes. Contemporaneously, PartnerRe U.S. Holdings issued a 6.440% Fixed-to-Floating Rate promissory note, with a principal amount of $257.6 million to PartnerRe Finance II. Under the terms of the promissory note, PartnerRe U.S. Holdings promises to pay to PartnerRe Finance II the principal amount on December 1, 2066, unless previously paid. Interest on the promissory note is payable semi-annually and commenced on June 1, 2007 through to December 1, 2016 at an annual fixed rate of 6.440% and will be payable quarterly thereafter until maturity at an annual rate of 3-month LIBOR plus a margin equal to 2.325%. On March 13, 2009, PartnerRe Finance II, under the terms of a tender offer, paid holders $500 per $1,000 principal amount of CENts tendered, and purchased approximately 75% of the issue, or $186.6 million, for $93.3 million. Contemporaneously, under the terms of a cross receipt agreement, PartnerRe U.S. Holdings paid PartnerRe Finance II consideration of $93.3 million for the extinguishment of $186.6 million of the principal amount of PartnerRe U.S. Holdings' 6.440% Fixed-to-Floating Rate promissory note due December 1, 2066. All other terms and conditions of the remaining CENts and promissory note remain unchanged. A pre-tax gain of $88.4 million, net of deferred issuance costs and fees, was realized on the foregoing transactions during the year ended December 31, 2009. At December 31, 2013 and 2012, the aggregate principal amount of the CENts and promissory note outstanding was $63.4 million and $71.0 million, respectively.



For each of the years ended December 31, 2013, 2012 and 2011, the Company incurred interest expense and paid interest of $4.6 million in relation to the CENts.

The Company did not enter into any short-term borrowing arrangements during the years ended December 31, 2013 and 2012.

Shareholders' Equity

Share Repurchases

In September 2013, the Company's Board of Directors approved a new share repurchase authorization of up to a total of 6 million common shares, which replaced the prior authorization of 6 million common shares approved in March 2013. Unless terminated earlier by resolution of the Company's Board of Directors, the program will expire when the Company has repurchased all shares authorized for repurchase thereunder. At December 31, 2013, the Company had approximately 5.0 million common shares remaining under its current share repurchase authorization and approximately 34.2 million common shares were held in treasury and are available for reissuance. During 2013, the Company repurchased under its authorized share repurchase program, approximately 7.7 million of its common shares at a total cost of $695 million, representing an average cost of $90.73 per share. These shares were repurchased at a discount to diluted book value per share at December 31, 2012 of approximately 10%. 143



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Subsequently, during the period from January 1, 2014 to February 25, 2014, the Company repurchased 1.1 million common shares at a total cost of $112 million, representing an average cost of $99.43 per share. Following these repurchases, the Company had approximately 3.8 million common shares remaining under its current share repurchase authorization and approximately 35.3 million common shares are held in treasury and are available for reissuance.



Redeemable Preferred Shares

During the years ended December 31, 2013, 2012 and 2011, the Company had outstanding Series C, Series D and Series E cumulative redeemable preferred shares (Series C preferred shares, Series D preferred shares, Series E preferred shares) and during the year ended December 31, 2013 issued Series F non-cumulative redeemable preferred shares (Series F preferred shares) as follows (in millions of U.S. dollars or shares, except percentage amounts):

Series C Series D Series E Series F Date of issuance May 2003 November 2004 June 2011 February 2013 Number of preferred shares issued 11.6 9.2 15.0 10.0 Annual dividend rate 6.75 % 6.5 % 7.25 % 5.875 % Total consideration $ 280.9 $ 222.3 $ 361.7 $ 242.3 Underwriting discounts and commissions $ 9.1 $ 7.7 $ 12.1 $ 7.7 Aggregate liquidation value $ 290.0 $ 230.0 $ 373.8 $ 250.0 Date of redemption March 2013 n/a n/a n/a n/a: not applicable



On February 14, 2013, the Company issued the Series F preferred shares. The net proceeds received on issuance of the Series F preferred shares were used, together with available cash, to redeem the Series C preferred shares.

On March 18, 2013, the Company redeemed the Series C preferred shares for the aggregate liquidation value of $290 million plus accrued and unpaid dividends. In connection with the redemption, the Company recognized a loss of $9.1 million related to the original issuance costs of the Series C preferred shares and calculated as a difference between the redemption price and the consideration received after underwriting discounts and commissions. The loss was recognized in determining the net income attributable to PartnerRe Ltd. common shareholders. The Company may redeem each of the Series D, E and F preferred shares at $25.00 per share plus accrued and unpaid dividends without interest as follows: (i) the Series D preferred shares can be redeemed at the Company's option at any time or in part from time to time; (ii) the Series E preferred shares can be redeemed at the Company's option on or after June 1, 2016 or at any time upon certain changes in tax law and (iii) the Series F preferred shares can be redeemed at the Company's option at any time or in part from time to time on or after March 1, 2018. The Company may also redeem the Series F preferred shares at any time upon the occurrence of a certain "capital disqualification event" or certain changes in tax law. Dividends on the Series F preferred shares are non-cumulative and are payable quarterly. Dividends on each of the Series D and E preferred shares are cumulative from the date of issuance and are payable quarterly in arrears. Dividends on Series F preferred shares are non-cumulative and are payable quarterly. In the event of liquidation of the Company, each of the Series D, E and F preferred shares rank on parity with each of the other series of preferred shares and would rank senior to the common shares. The holders of the Series D and E preferred shares would receive a distribution of $25.00 per share, or the aggregate liquidation value, plus accrued but unpaid dividends, if any. The holders of the Series F would receive a distribution of $25.00 per share, or the aggregate liquidation value, plus declared and unpaid dividends, if any. 144



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Liquidity

Liquidity is a measure of the Company's ability to access sufficient cash flows to meet the short-term and long-term cash requirements of its business operations. Management believes that its significant cash flows from operations and high quality liquid investment portfolio will provide sufficient liquidity for the foreseeable future. At December 31, 2013 and 2012, cash and cash equivalents were $1.5 billion and $1.1 billion, respectively. The increase in cash and cash equivalents was primarily due to cash provided by the Company's operating and investing activities, which was partially utilized to fund the Company's share repurchases and dividend payments. Net cash provided by operating activities increased to $827 million in 2013 from $693 million in 2012. The increase was primarily due to higher underwriting cash flows, which were related to a higher level of premium receipts driven by the increase in gross premiums written and a lower level of loss payments in 2013 compared to 2012. This increase in cash flows from operating activities was partially offset by lower investment income.



Net cash provided by investing activities was $418 million in 2013 compared to net cash used by investing activities of $220 million in 2012. The net cash provided by investing activities in 2013 primarily reflects the sale and maturity of investments to fund financing activities, as described below.

Net cash used in financing activities was $866 million in 2013 compared to $688 million in 2012. Net cash used in financing activities in 2013 was primarily related to the Company's share repurchases, the redemption of the Series C preferred shares and dividend payments on common and preferred shares, which were partially offset by proceeds from the issuance of the Series F preferred shares. Net cash used in financing activities in 2012 was related to share repurchases and dividend payments on common and preferred shares. The parent company is a holding company with no operations or significant assets other than its investments in its subsidiaries and other intercompany balances. The parent company has cash outflows in the form of operating expenses, interest payments related to its debt, dividends to both common and preferred shareholders and, from time to time, cash outflows for principal repayments related to its debt, and the repurchase of its common shares under its share repurchase program. For the year ended December 31, 2013, the parent company incurred other operating expenses of $92 million, common dividends were $142 million, preferred dividends were $58 million and share repurchases were $695 million. In January 2014, the Company announced that it was increasing its quarterly dividend to $0.67 per common share or approximately $141 million in total for 2014, assuming a constant number of common shares outstanding and a constant dividend rate, and it will declare approximately $57 million in dividends to preferred shareholders in 2014. The Company's ability to pay common and preferred shareholders' dividends and its corporate expenses is dependent mainly on cash dividends from PartnerReBermuda, PartnerRe Europe and PartnerRe U.S. (collectively, the reinsurance subsidiaries), which are the Company's most significant subsidiaries. The payment of such dividends by the reinsurance subsidiaries to the Company is limited under Bermuda and Irish laws and certain statutes of various U.S. states in which PartnerRe U.S. is licensed to transact business. The restrictions are generally based on net income and/or certain levels of policyholders' earned surplus as determined in accordance with the relevant statutory accounting practices. At December 31, 2013, there were no restrictions on the Company's ability to pay common and preferred shareholders' dividends from its retained earnings, except for the reinsurance subsidiaries' dividend restrictions as described in Note 14 to Consolidated Financial Statements in Item 8 of Part II of this report. The reinsurance subsidiaries of the Company depend upon cash inflows from the collection of premiums as well as investment income and proceeds from the sales and maturities of investments to meet their obligations. Cash outflows are in the form of claims payments, purchase of investments, operating expenses, income tax payments, intercompany payments as well as dividend payments to the holding company, and additionally, in the case of PartnerRe U.S. Holdings, interest payments on the Senior Notes and the CENts. At December 31, 2013, PartnerRe U.S. Holdings and its subsidiaries have $750 million in Senior Notes and $63 million of CENts outstanding and will pay approximately $49 million in aggregate interest payments in 2014 related to this debt. 145



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Historically, the operating subsidiaries of the Company have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of the business written by the Company, the seasonality in the timing of payments by cedants, the irregular timing of loss payments, the impact of a change in interest rates and credit spreads on the investment income as well as seasonality in coupon payment dates for fixed income securities, cash flows from operating activities may vary significantly between periods. The Company believes that annual positive cash flows from operating activities will be sufficient to cover claims payments, absent a series of additional large catastrophic loss activity. In the event that paid losses accelerate beyond the ability to fund such payments from operating cash flows, the Company would use its cash balances available, liquidate a portion of its high quality and liquid investment portfolio or access certain uncommitted credit facilities. As discussed in Investments above, the Company's investments and cash totaled $16.6 billion at December 31, 2013, the main components of which were investment grade fixed maturities, short-term investments and cash and cash equivalents totaling $14.0 billion. Financial strength ratings and senior unsecured debt ratings represent the opinions of rating agencies on the Company's capacity to meet its obligations. In the event of a significant downgrade in ratings, the Company's ability to write business and to access the capital markets could be impacted. Some of the Company's reinsurance treaties contain special funding and termination clauses that would be triggered in the event the Company or one of its subsidiaries is downgraded by one of the major rating agencies to levels specified in the treaties, or the Company's capital is significantly reduced. If such an event were to occur, the Company would be required, in certain instances, to post collateral in the form of letters of credit and/or trust accounts against existing outstanding losses, if any, related to the treaty. In a limited number of instances, the subject treaties could be canceled retroactively or commuted by the cedant.



The Company's current financial strength ratings are as follows:

Standard & Poor's A+ Moody's A1 A.M. Best A+ Fitch AA- Credit Agreements In the normal course of its operations, the Company enters into agreements with financial institutions to obtain unsecured and secured credit facilities. At December 31, 2013, the total amount of such credit facilities available to the Company was approximately $850 million, with each of the significant facilities described below. These facilities are used primarily for the issuance of letters of credit, although a portion of these facilities may also be used for liquidity purposes. Under the terms of certain reinsurance agreements, irrevocable letters of credit were issued on an unsecured and secured basis in the amount of $137 million and $410 million, respectively, at December 31, 2013, in respect of reported loss and unearned premium reserves. On November 14, 2012, the Company entered into an agreement to renew and modify an existing credit facility. Under the terms of the agreement, this credit facility was increased from a $250 million to a $300 million combined credit facility, with the first $100 million being unsecured and any utilization above the initial $100 million being secured. This credit facility matures on November 14, 2014. In addition, the Company maintains committed secured letter of credit facilities. These facilities are used for the issuance of letters of credit, which must be fully secured with cash and/or government bonds and/or investment grade bonds. The agreements include default covenants, which could require the Company to fully secure the outstanding letters of credit to the extent that the facility is not already fully secured, and disallow the issuance of any new letters of credit. Included in the Company's secured credit facilities at December 31, 2013 is a $250 million secured credit facility, which matures on December 4, 2016, and a $200 million secured credit facility, which matures on December 31, 2014. At December 31, 2013, no conditions of default existed under these facilities. 146



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Currency

The Company's reporting currency is the U.S. dollar. The Company has exposure to foreign currency risk due to both its ownership of its Irish, French and Canadian subsidiaries and branches, whose functional currencies are the euro and the Canadian dollar, and to underwriting reinsurance exposures, collecting premiums and paying claims and other operating expenses in currencies other than the U.S. dollar and holding certain net assets in such currencies, where the Company's most significant foreign currency exposure is to the euro. At December 31, 2013, the value of the U.S. dollar weakened against most major currencies compared to December 31, 2012, which resulted in an increase in the U.S. dollar value of the assets and liabilities denominated in non-U.S. dollar currencies. See Results of Operations and Review of Net Income (Loss) above for a discussion of the impact of foreign exchange and net foreign exchange gains and losses during the years ended December 31, 2013, 2012 and 2011. The foreign exchange gain or loss resulting from the translation of the Company's subsidiaries' and branches' financial statements (expressed in euro or Canadian dollar functional currency) into U.S. dollars is classified in the currency translation adjustment account, which is a component of accumulated other comprehensive income or loss in shareholders' equity. The currency translation adjustment account decreased by $32 million during the year ended December 31, 2013 compared to an increase of $29 million and a decrease of $12 million during the years ended December 31, 2012 and 2011, respectively, due to the translation of the Company's subsidiaries and branches, whose functional currencies are the Canadian dollar and the euro.



The reconciliation of the currency translation adjustment for the years ended December 31, 2013, 2012 and 2011 was as follows (in millions of U.S. dollars):

2013 2012 2011 Currency translation adjustment at beginning of year $ 33



$ 4$ 16 Change in currency translation adjustment included in other comprehensive loss (income)

(32 )



29 (12 )

Currency translation adjustment at end of year $ 1



$ 33$ 4

From time to time, the Company enters into net investment hedges. At December 31, 2013, there were no outstanding foreign exchange contracts hedging the Company's net investment exposure.

See Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk in Item 7A of Part II below for a discussion of the Company's risk related to changes in foreign currency movements.



Effects of Inflation

The effects of inflation are considered implicitly in pricing and estimating reserves for unpaid losses and loss expenses. The actual effects of inflation on the results of operations of the Company cannot be accurately known until claims are ultimately settled. New Accounting Pronouncements



See Note 2(u) to the Consolidated Financial Statements included in Item 8 of Part II of this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview

Management believes that the Company is principally exposed to five types of market related risk: interest rate risk, credit spread risk, foreign currency risk, counterparty credit risk and equity price risk. How these risks relate to the Company, and the process used to manage them, is discussed below. 147



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As discussed above in this report, the Company's investment philosophy distinguishes between assets that are generally matched against the estimated net reinsurance liabilities (liability funds) and those assets that represent shareholder capital (capital funds). Liability funds are invested in a way that generally matches them to the corresponding liabilities in both duration and currency composition to provide a natural hedge against changes in interest rates and foreign exchange rates. The Company's investment philosophy is to reduce foreign currency risk on capital funds by investing primarily in U.S. dollar denominated investments. In considering the market risk of capital funds, it is important to recognize the benefits of portfolio diversification. Although these asset classes in isolation may introduce more risk into the portfolio, market forces have a tendency to influence each class in different ways and at different times. Consequently, the aggregate risk introduced by a portfolio of these assets should be less than might be estimated by summing the individual risks. Although the focus of this discussion is to identify risk exposures that impact the market value of assets alone, it is important to recognize that the risks discussed herein are significantly mitigated to the extent that the Company's investment strategy allows market forces to influence the economic valuation of assets and liabilities in a way that is generally offsetting. As described above in this report, the Company's investment strategy allows the use of derivative investments, subject to strict limitations. The Company also imposes a high standard for the credit quality of counterparties in all derivative transactions and aims to diversify its counterparty credit risk exposure. See Note 6 to the Consolidated Financial Statements in Item 8 of Part II of this report for additional information related to derivatives.



The following addresses those areas where the Company believes it has exposure to material market risk in its operations.

Interest Rate Risk

The Company's fixed maturity portfolio and the fixed maturity securities in the investment portfolio underlying the funds held - directly managed account are exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. The Company manages interest rate risk on liability funds by constructing bond portfolios in which the economic impact of a general interest rate shift is comparable to the impact on the related liabilities. The Company believes that this process of matching the duration mitigates the overall interest rate risk on an economic basis. For unpaid loss reserves and policy benefits related to non-life and traditional life business, the estimated duration of the Company's liabilities is based on projected claims payout patterns. For policy benefits related to annuity business, the Company estimates duration based on its commitment to annuitants. The Company manages the exposure to interest rate volatility on capital funds by choosing a duration profile that it believes will optimize the risk-reward relationship. While this matching of duration insulates the Company from the economic impact of interest rate changes, changes in interest rates do impact the Company's shareholders' equity. The Company's liabilities are carried at their nominal value, and are not adjusted for changes in interest rates, with the exception of certain policy benefits for life and annuity contracts and deposit liabilities that are interest rate sensitive. However, substantially all of the Company's invested assets (including the investments underlying the funds held - directly managed account) are carried at fair value, which reflects such changes. As a result, an increase in interest rates will result in a decrease in the fair value of the Company's investments (including the investments underlying the funds held - directly managed account) and a corresponding decrease, net of applicable taxes, in the Company's shareholders' equity. A decrease in interest rates would have the opposite effect. At December 31, 2013, the Company held approximately $3,442 million of its total invested assets in mortgage/asset-backed securities. These assets are exposed to prepayment risk, the adverse impact of which is more evident in a declining interest rate environment. 148



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At December 31, 2013, the Company estimates that the hypothetical case of an immediate 100 basis points or 200 basis points parallel shift in global bond curves would result in a change in the fair value of investments exposed to interest rate risk, the fair value of funds held - directly managed account exposed to interest rate risk, total invested assets, and shareholders' equity as follows (in millions of U.S. dollars): -200 Basis % -100 Basis % December 31, +100 Basis % +200 Basis % Points Change Points Change 2013 Points Change Points Change Fair value of investments exposed to interest rate risk (1)(2) $ 15,886 6 % $ 15,431 3 % $ 14,976$ 14,521 (3 )% $ 14,066 (6 )% Fair value of funds held - directly managed account exposed to interest rate risk (2) 669 6 650 3 631 612 (3 ) 593 (6 ) Total invested assets (3) 18,432 5 17,958 3 17,484 17,010 (3 ) 16,536 (5 ) Shareholders' equity 7,714 14 7,240 7 6,766 6,292 (7 ) 5,818 (14 )



(1) Includes certain other invested assets, certain cash and cash equivalents and

funds holding fixed income securities.

(2) Excludes accrued interest.

(3) Includes total investments, cash and cash equivalents, the investment

portfolio underlying the funds held - directly managed account and accrued

interest.

The changes do not take into account any potential mitigating impact from the equity market, taxes or the corresponding change in the economic value of the Company's reinsurance liabilities, which, as noted above, would substantially offset the economic impact on invested assets, although the offset would not be reflected in the Consolidated Balance Sheet. As discussed above, the Company strives to match the foreign currency exposure in its fixed income portfolio to its multicurrency liabilities. The Company believes that this matching process creates a diversification benefit. Consequently, the exact market value effect of a change in interest rates will depend on which countries experience interest rate changes and the foreign currency mix of the Company's fixed maturity portfolio at the time of the interest rate changes. See Foreign Currency Risk below. The impact of an immediate change in interest rates on the fair value of investments and funds held - directly managed exposed to interest rate risk, the Company's total invested assets and shareholders' equity, in both absolute terms and as a percentage of total invested assets and shareholders' equity, has not changed significantly at December 31, 2013 compared to December 31, 2012. Interest rate movements also affect the economic value of the Company's outstanding debt obligations and preferred securities in the same way that they affect the Company's fixed maturity investments. This can result in a liability whose economic value is different from the carrying value reported in the Consolidated Balance Sheet given the Company records the carrying value of its outstanding debt obligations and preferred securities at the original issued principal amount. The Company believes that the economic fair value of its outstanding Senior Notes, CENts and preferred shares at December 31, 2013 was as follows (in millions of U.S. dollars): Carrying Fair Value Value Debt related to Senior Notes (1) $ 750$ 844 Debt related to Capital Efficient Notes (2) 63 61 Series D cumulative preferred shares 230 208 Series E cumulative preferred shares 374 378 Series F non-cumulative preferred shares 250 202 149



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(1) PartnerRe Finance A LLC and PartnerRe Finance B LLC, the issuers of the

Senior Notes, do not meet consolidation requirements under U.S. GAAP.

Accordingly, the Company shows the related intercompany debt of $750 million

in its Consolidated Balance Sheets at December 31, 2013 and 2012.

(2) PartnerRe Finance II Inc., the issuer of the CENts, does not meet

consolidation requirements under U.S. GAAP. Accordingly, the Company shows

the related intercompany debt of $71 million in its Consolidated Balance

Sheets at December 31, 2013 and 2012.

The fair value of the debt related to Senior Notes issued by PartnerRe Finance B LLC, PartnerRe Finance A LLC and the CENts was calculated based on discounted cash flow models using observable market yields and contractual cash flows based on the aggregate principal amount outstanding of $500 million from PartnerRe Finance B LLC, $250 million from PartnerRe Finance A and $63 million from PartnerRe Finance II, respectively. For the Company's Series D and Series E cumulative preferred shares, and the Series F non-cumulative preferred shares, fair value is based on quoted market prices, while carrying value is based on the aggregate liquidation value of the shares. The fair value of the Company's outstanding debt obligations decreased modestly at December 31, 2013 compared to December 31, 2012, primarily due to rising U.S. risk-free interest rates. Other than the changes related to the redemption of the Series C preferred shares and the issuance of the Series F preferred shares, the fair value of the Company's preferred securities declined at December 31, 2013, compared to December 31, 2012 due to rising risk-free interest rates. See Shareholders' Equity and Capital Resources Management-Shareholders' Equity above for a discussion the issuance of the Series F preferred shares in February 2013 and the redemption of the Series C preferred shares in March 2013.



Credit Spread Risk

The Company's fixed maturity portfolio and the fixed maturity securities in the investment portfolio underlying the funds held - directly managed account are exposed to credit spread risk. Fluctuations in market credit spreads have a direct impact on the market valuation of these securities. The Company manages credit spread risk by the selection of securities within its fixed maturity portfolio. Changes in credit spreads directly affect the market value of certain fixed maturity securities, but do not necessarily result in a change in the future expected cash flows associated with holding individual securities. Other factors, including liquidity, supply and demand, and changing risk preferences of investors, may affect market credit spreads without any change in the underlying credit quality of the security. As with interest rates, changes in credit spreads impact the shareholders' equity of the Company as invested assets are carried at fair value, which includes changes in credit spreads. As a result, an increase in credit spreads will result in a decrease in the fair value of the Company's investments (including the investment portfolio underlying the funds held - directly managed account) and a corresponding decrease, net of applicable taxes, in the Company's shareholders' equity. A decrease in credit spreads would have the opposite effect. 150



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At December 31, 2013, the Company estimates that the hypothetical case of an immediate 100 basis points or 200 basis points parallel shift in global credit spreads would result in a change in the fair value of investments and the fair value of funds held - directly managed account exposed to credit spread risk, total invested assets and shareholders' equity as follows (in millions of U.S. dollars): -200 Basis % -100 Basis % December 31, +100 Basis % +200 Basis % Points Change Points Change 2013 Points Change Points Change Fair value of investments exposed to credit spread risk (1)(2) $ 15,788 5 % $ 15,382 3 % $ 14,976$ 14,570 (3 )% $ 14,164 (5 )% Fair value of funds held - directly managed account exposed to credit spread risk (2) 653 3 642 2 631 620 (2 ) 609 (3 ) Total invested assets (3) 18,318 5 17,901 2 17,484 17,067 (2 ) 16,650 (5 ) Shareholders' equity 7,600 12 7,183 6 6,766 6,349 (6 ) 5,932 (12 )



(1) Includes certain other invested assets, certain cash and cash equivalents and

funds holding fixed income securities.

(2) Excludes accrued interest.

(3) Includes total investments, cash and cash equivalents, the investment

portfolio underlying the funds held - directly managed account and accrued

interest.

The changes above also do not take into account any potential mitigating impact from the equity market, taxes, and the change in the economic value of the Company's reinsurance liabilities, which may offset the economic impact on invested assets.

The impact of an immediate change in credit spreads on the fair value of investments and funds held - directly managed exposed to credit spread risk, the Company's total invested assets and shareholders' equity, in both absolute terms and as a percentage of total invested assets and shareholders' equity, has not changed significantly at December 31, 2013 compared to December 31, 2012.



Foreign Currency Risk

Through its multinational reinsurance operations, the Company conducts business in a variety of non-U.S. currencies, with the principal exposures being the euro, Canadian dollar, British pound, New Zealand dollar, and Australian dollar. As the Company's reporting currency is the U.S. dollar, foreign exchange rate fluctuations may materially impact the Company's Consolidated Financial Statements. The Company is generally able to match its liability funds against its net reinsurance liabilities both by currency and duration to protect the Company against foreign exchange and interest rate risks. However, a natural offset does not exist for all currencies. For the non-U.S. dollar currencies for which the Company deems the net asset or liability exposures to be material, the Company employs a hedging strategy utilizing foreign exchange forward contracts and other derivative financial instruments, as appropriate, to reduce exposure and more appropriately match the liability funds by currency. The Company does not hedge currencies for which its asset or liability exposures are not material or where it is unable or impractical to do so. In such cases, the Company is exposed to foreign currency risk. However, the Company does not believe that the foreign currency risks corresponding to these unhedged positions are material, except for those related to the Company's capital funds. For the Company's capital funds, including its net investment in foreign subsidiaries and branches and equity securities, the Company does not typically employ hedging strategies. However, from time to time the Company does enter into net investment hedges to offset foreign exchange volatility (see Currency in Item 7 of Part II of this report). 151



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The Company's gross and net exposure in its Consolidated Balance Sheet at December 31, 2013 to foreign currency as well as the associated foreign currency derivatives the Company has entered into to manage this exposure, was as follows (in millions of U.S. dollars): euro CAD GBP NZD AUD Other Total (1) Total assets $ 4,338$ 1,104$ 1,683$ 146$ 105$ 680$ 8,056 Total liabilities (4,377 ) (609 ) (1,084 ) (241 ) (170 ) (1,379 ) (7,860 ) Total gross foreign currency exposure (39 ) 495 599 (95 ) (65 ) (699 ) 196 Total derivative amount (241 ) (22 ) (576 ) 89 86 709 45 Net foreign currency exposure $ (280 )$ 473$ 23$ (6 )$ 21$ 10$ 241



(1) As the U.S. dollar is the Company's reporting currency, there is no currency

risk attached to the U.S. dollar and it is excluded from this table. The U.S.

dollar accounted for the difference between the Company's total foreign

currency exposure in this table and the total assets and total liabilities in

the Company's Consolidated Balance Sheet at December 31, 2013.

The above numbers include the Company's investment in PartnerRe Holdings Europe Limited, whose functional currency is the euro, and certain of its subsidiaries and branches, whose functional currencies are the euro or Canadian dollar. At December 31, 2013, the Company's net foreign currency exposure in its Consolidated Balance Sheet, after the effect of derivatives, was $241 million. The Company's most significant net foreign currency exposure at December 31, 2013 was to the Canadian dollar which reflects the unhedged net investment in its Canadian branches. The decrease of $420 million in the Company's net foreign currency exposure to $241 million at December 31, 2013 compared to $661 million at December 31, 2012 is primarily related to a decrease in the Company's net foreign currency exposure to the euro. At December 31, 2013, assuming all other variables remain constant and disregarding any tax effects, a change in the U.S. dollar of 10% or 20% relative to all of the other currencies held by the Company simultaneously would result in a change in the Company's net assets of $24 million and $48 million, respectively, inclusive of the effect of foreign exchange forward contracts and other derivative financial instruments.



Counterparty Credit Risk

Investments and Cash

The Company has exposure to credit risk primarily as a holder of fixed maturity securities. The Company controls this exposure by emphasizing investment grade credit quality in the fixed maturity securities it purchases. At December 31, 2013, approximately 55% of the Company's fixed maturity portfolio (including the funds held - directly managed account and funds holding fixed maturity securities) was rated AA (or equivalent rating) or better. At December 31, 2013, approximately 77% the Company's fixed maturity and short-term investments (including funds holding fixed maturity securities and excluding the funds held - directly managed account) were rated A- or better and 8% were rated below investment grade or not rated. The Company believes this high quality concentration reduces its exposure to credit risk on fixed maturity investments to an acceptable level. At December 31, 2013, the Company is not exposed to any significant credit concentration risk on its investments, excluding securities issued by the U.S. government which are rated AA+. The single largest non-U.S. sovereign government issuer accounted for less than 19% of the Company's total non-U.S. sovereign government, supranational and government related category (excluding the funds held - directly managed account) and less than 3% of total investments and cash (excluding the funds held - directly managed account) at December 31, 2013. In addition, the single largest corporate issuer and the top 10 corporate issuers accounted for less than 3% and less than 19% of the Company's total corporate fixed maturity securities (excluding the funds held - directly 152



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managed account), respectively, at December 31, 2013. Within the segregated investment portfolio underlying the funds held - directly managed account, the single largest corporate issuer and the top 10 corporate issuers accounted for less than 4% and less than 32% of total corporate fixed maturity securities underlying the funds held - directly managed account at December 31, 2013, respectively.



Funds held - directly managed account

The funds held - directly managed account due to the Company is related to one cedant, ColisÉe Re (see Investments underlying the Funds Held - Directly Managed Account in Item 1 of Part I of this report). The Company is subject to the credit risk of this cedant in the event of insolvency or ColisÉe Re's failure to honor the value of the funds held balances for any other reason. However, the Company's credit risk is somewhat mitigated by the fact that the Company generally has the right to offset any shortfall in the payment of the funds held balances with amounts owed by the Company to the cedant for losses payable and other amounts contractually due. See also Risk Factors in Item 1A of Part I of this report for additional discussion of the Company's exposure if ColisÉe Re, or its affiliates, breach or do not satisfy their obligations. In addition to exposure to ColisÉe Re, the Company is also subject to the credit risk of AXA or its affiliates in the event of their insolvency or their failure to honor their obligations under the acquisition agreements.



The Company keeps cash and cash equivalents in several banks and ensures that there are no significant concentrations at any point in time, in any one bank.

Derivatives

To a lesser extent, the Company also has credit risk exposure as a party to foreign exchange forward contracts and other derivative contracts. To mitigate this risk, the Company monitors its exposure by counterparty, aims to diversify its counterparty credit risk and ensures that counterparties to these contracts are high credit quality international banks or counterparties. These contracts are generally of short duration (approximately 90 days) and settle on a net basis, which means that the Company is exposed to the movement of one currency against the other, as opposed to the notional amount of the contracts. At December 31, 2013, the Company's absolute notional value of foreign exchange forward contracts and foreign currency option contracts was $2,045 million, while the net fair value of those contracts was an unrealized loss of $8 million.



Underwriting Operations

The Company is also exposed to credit risk in its underwriting operations, most notably in the credit/surety line and for alternative risk products. Loss experience in these lines of business is cyclical and is affected by the general economic environment. The Company provides its clients in these lines of business with protection against credit deterioration, defaults or other types of financial non-performance of or by the underlying credits that are the subject of the protection provided and, accordingly, the Company is exposed to the credit risk of those credits. As with all of the Company's business, these risks are subject to rigorous underwriting and pricing standards. In addition, the Company strives to mitigate the risks associated with these credit-sensitive lines of business through the use of risk management techniques such as risk diversification, careful monitoring of risk aggregations and accumulations and, at times, through the use of retrocessional reinsurance protection and the purchase of credit default swaps and total return and interest rate swaps. At December 31, 2013, the Company purchased protection related to its credit/surety line primarily in the form of credit default swaps with a notional value of $14 million and an insignificant fair value. The Company is subject to the credit risk of its cedants in the event of their insolvency or their failure to honor the value of the funds held balances due to the Company for any other reason. However, the Company's credit risk in some jurisdictions is mitigated by a mandatory right of offset of amounts payable by the Company to a cedant against amounts due to the Company. In certain other jurisdictions the Company is able to mitigate this risk, depending on the nature of the funds held arrangements, to the extent that the Company has the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by the Company to cedants for losses payable and other amounts contractually due. Funds held balances for which the 153



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Company receives an investment return based upon either the results of a pool of assets held by the cedant or the investment return earned by the cedant on its investment portfolio are exposed to an additional layer of credit risk. The Company is also exposed to some extent to the underlying financial market risk of the pool of assets, inasmuch as the underlying policies may have guaranteed minimum returns. The Company has exposure to credit risk as it relates to its business written through brokers if any of the Company's brokers is unable to fulfill their contractual obligations with respect to payments to the Company. In addition, in some jurisdictions, if the broker fails to make payments to the insured under the Company's policy, the Company might remain liable to the insured for the deficiency. The Company's exposure to such credit risk is somewhat mitigated in certain jurisdictions by contractual terms. See Risk Factors in Item 1A of Part I of this report for information related to two brokers that accounted for approximately 43% of the Company's gross premiums written for the year ended December 31, 2013. The Company has exposure to credit risk as it relates to its reinsurance balances receivable and reinsurance recoverable on paid and unpaid losses. Reinsurance balances receivable from the Company's clients at December 31, 2013 were $2,466 million, including balances both currently due and accrued. The Company believes that credit risk related to these balances is mitigated by several factors, including but not limited to, credit checks performed as part of the underwriting process and monitoring of aged receivable balances. In addition, as the majority of its reinsurance agreements permit the Company the right to offset reinsurance balances receivable from clients against losses payable to them, the Company believes that the credit risk in this area is substantially reduced. Provisions are made for amounts considered potentially uncollectible and the allowance for uncollectible premiums receivable was $8 million at December 31, 2013. The Company purchases retrocessional reinsurance and requires its reinsurers to have adequate financial strength. The Company evaluates the financial condition of its reinsurers and monitors its concentration of credit risk on an ongoing basis. Provisions are made for amounts considered potentially uncollectible. At December 31, 2013, the balance of reinsurance recoverable on paid and unpaid losses was $274 million, which is net of the allowance provided for uncollectible reinsurance recoverables of $15 million. At December 31, 2013, 72% of the Company's reinsurance recoverable on paid and unpaid losses were either due from reinsurers with an A- or better rating from Standard & Poor's. See Financial Condition, Liquidity and Capital Resources-Reinsurance Recoverable on Paid and Unpaid Losses above for details of the Company's reinsurance recoverable on paid and unpaid losses categorized by the reinsurer's Standard & Poor's rating.



Other than the items discussed above, the concentrations of the Company's counterparty credit risk exposures have not changed materially at December 31, 2013, compared to December 31, 2012.

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Equity Price Risk

The Company invests a portion of its capital funds in marketable equity securities (fair market value of $1,036 million, excluding funds holding fixed income securities of $185 million) at December 31, 2013. These equity investments are exposed to equity price risk, defined as the potential for loss in market value due to a decline in equity prices. The Company believes that the effects of diversification and the relatively small size of its investments in equities relative to total invested assets mitigate its exposure to equity price risk. The Company estimates that its equity investment portfolio has a beta versus the S&P 500 Index of approximately 0.92 on average. Portfolio beta measures the response of a portfolio's performance relative to a market return, where a beta of 1 would be an equivalent return to the index. Given the estimated beta for the Company's equity portfolio, a 10% and 20% movement in the S&P 500 Index would result in a change in the fair value of the Company's equity portfolio, total invested assets and shareholders' equity at December 31, 2013 as follows (in millions of U.S. dollars): 20% % 10% % December 31, 10% % 20% % Decrease Change Decrease Change 2013 Increase Change Increase Change Equities (1) $ 846 (18 )% $ 941 (9 )% $ 1,036$ 1,131 9 % $ 1,226 18 % Total invested assets (2) 17,294 (1 ) 17,389 (1 ) 17,484 17,579 1 17,674 1 Shareholders' equity 6,576 (3 ) 6,671 (1 ) 6,766 6,861 1 6,956 3



(1) Excludes funds holding fixed income securities of $185 million.

(2) Includes total investments, cash and cash equivalents, the investment

portfolio underlying the funds held - directly managed account and accrued

interest.

This change does not take into account any potential mitigating impact from the fixed maturity securities or taxes.

There was no material change in the absolute or percentage impact of an immediate change of 10% in the S&P 500 Index on the Company's equity portfolio, total invested assets and shareholders' equity at December 31, 2013 compared to December 31, 2012. 155



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